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Loans Growth and Banks’ Risk: New Evidence

  • Juan Sebastián Amador Torres

    ()

  • José EDuardo Gómez G.

    ()

  • Andrés Murcia Pabón

    ()

This study provides new evidence on the relationship between abnormal loan growth and banks’ risk taking behavior, using data from a rich panel of Colombian financial institutions. We show that abnormal credit growth during a prolonged period of time leads to an increase in banks’ riskiness, supported by a reduction in solvency and an increase in the ratio of non-performing loans to total loans. We also show that abnormal credit growth played a fundamental role in the bank-failure process during the late 1990s financial crisis in Colombia. Our results have important implications for financial regulation and macro-prudential policy.

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Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 763.

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Length: 26
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:bdr:borrec:763
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