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Loans Growth and Banks´ Risk: New Evidence

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  • Juan Sebastián Amador Torres

    ()

  • José Eduardo Gómez G.

    ()

  • Andrés Murcia Pabón

    ()

Abstract

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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  • Juan Sebastián Amador Torres & José Eduardo Gómez G. & Andrés Murcia Pabón, 2013. "Loans Growth and Banks´ Risk: New Evidence," BORRADORES DE ECONOMIA 010710, BANCO DE LA REPÚBLICA.
  • Handle: RePEc:col:000094:010710
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    Cited by:

    1. Niu, Jijun, 2016. "Loan growth and bank valuations," The Quarterly Review of Economics and Finance, Elsevier, vol. 61(C), pages 185-191.
    2. Luis E. Arango & Lina Cardona-Sosa, 2015. "Consumer credit performance over the business cycle in Colombia: some empirical facts," BORRADORES DE ECONOMIA 012389, BANCO DE LA REPÚBLICA.
    3. Tammuz Alraheb & Amine Tarazi, 2016. "Local Versus International Crises, Foreign Subsidiaries and Bank Stability: Evidence from the MENA Region," Working Papers 1045, Economic Research Forum, revised 09 Jan 2016.
    4. José E. Gómez-González & Luis Fernando Melo Velandia, 2013. "Efectos de “ángeles caídos” en el mercado accionario colombiano: estudio de eventos del caso Interbolsa," BORRADORES DE ECONOMIA 010977, BANCO DE LA REPÚBLICA.
    5. Loaiza-Maya, Rubén Albeiro & Gómez-González, José Eduardo & Melo-Velandia, Luis Fernando, 2015. "Exchange rate contagion in Latin America," Research in International Business and Finance, Elsevier, vol. 34(C), pages 355-367.
    6. repec:eee:ecosys:v:41:y:2017:i:3:p:389-407 is not listed on IDEAS
    7. José E. Gómez-González & Luis Fernando Melo Velandia, 2013. "Efectos de “ángeles caídos” en el mercado accionario colombiano: estudio de eventos del caso Interbolsa," Borradores de Economia 779, Banco de la Republica de Colombia.
    8. Jose Eduardo Gomez-Gonzalez & Mauricio Villamizar-Villegas & Hector Manuel Zarate & Juan Sebastian Amador & Celina Gaitan-Maldonado, 2015. "Credit and business cycles: Causal effects in the frequency domain," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, vol. 33(78), pages 176-189, December.
    9. Luis E. Arango & Lina Cardona-Sosa, 2015. "Consumer credit performance over the business cycle in Colombia: some empirical facts," Borradores de Economia 861, Banco de la Republica de Colombia.
    10. Loaiza-Maya, Rubén Albeiro & Gómez-González, José Eduardo & Melo-Velandia, Luis Fernando, 2015. "Exchange rate contagion in Latin America," Research in International Business and Finance, Elsevier, vol. 34(C), pages 355-367.
    11. José E. Gómez-González & Luis Fernando Melo Velandia, 2014. "Efectos de «ángeles caídos» en el mercado accionario colombiano: estudio de eventos del caso Interbolsa," Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 32(75), pages 23-27, December.
    12. Luis Fernando melo V., 1996. "Pronosticos Condicionados Para Modelos Var," BORRADORES DE ECONOMIA 003392, BANCO DE LA REPÚBLICA.
    13. Andres Murcia & Emanuel Kohlscheen, 2016. "Moving in tandem: bank provisioning in emerging market economies," BIS Working Papers 548, Bank for International Settlements.
    14. J. Sebastián Amador-Torres, 2016. "Finance neutral potential output: an evaluation on an emerging market monetary policy context," Borradores de Economia 958, Banco de la Republica de Colombia.

    More about this item

    Keywords

    Abnormal loan growth; Hazard duration models; FGLS estimation; Emerging market economies.;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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