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Credit Cycles, Credit Risk and Countercyclical Loan Provisions

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Listed:
  • Martha L�pez
  • Fernando Tenjo Galarza
  • Hector Z�rate

Abstract

In this paper we investigate the impact of rapid credit growth on ex ante credit risk. We present micro-econometric evidence of the positive relationship between rapid credit growth and deterioration in lending portfolios: Loans granted during boom periods have higher probability of default than those granted during periods of slow credit growth. In addition, given their importance for macroprudential policy, we evaluate the effectiveness of the implementation of the countercyclical loan provisions. We find a negative relationship between the amplitude of credit cycles and this kind of macroprudential tool.

Suggested Citation

  • Martha L�pez & Fernando Tenjo Galarza & Hector Z�rate, 2013. "Credit Cycles, Credit Risk and Countercyclical Loan Provisions," Borradores de Economia 11092, Banco de la Republica.
    • Handle: RePEc:col:000094:011092
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    2. Agénor, Pierre-Richard & Pereira da Silva, Luiz, 2017. "Cyclically adjusted provisions and financial stability," Journal of Financial Stability, Elsevier, vol. 28(C), pages 143-162.
    3. Xiaofeng Hui & Aoran Zhang, 2020. "Construction and Empirical Research on the Dynamic Provisioning Model of China’s Banking Sector under the Macro-Prudential Framework," Sustainability, MDPI, vol. 12(20), pages 1-26, October.
    4. Hernando Vargas, Pamela Cardozo and Andrés Murcia, 2017. "The macroprudential policy framework in Colombia," BIS Papers chapters, in: Bank for International Settlements (ed.), Macroprudential policy frameworks, implementation and relationships with other policies, volume 94, pages 103-128, Bank for International Settlements.
    5. Fabiani, Andrea & López-Piñeros, Martha & Peydró, José-Luis & Soto, Paul E., 2022. "Capital Controls, Domestic Macroprudential Policy and the Bank Lending Channel of Monetary Policy," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 139(November ), pages 1-1.
    6. Central Bank of Colombia, 2025. "Changes in the distribution of new loans by risk category throughout the post-pandemic credit cycle in Colombia," BIS Papers chapters, in: Bank for International Settlements (ed.), How can central banks take account of differences across households and firms for monetary policy?, volume 127, pages 73-102, Bank for International Settlements.
    7. Horacio A Aguirre & Gastón Repetto, 2017. "Capital and currency-based macroprudential policies: an evaluation using credit registry data," BIS Working Papers 672, Bank for International Settlements.
    8. Wilmar Cabrera & Santiago Gamba & Camilo Gómez & Mauricio Villamizar-Villegas, 2022. "Examining Macroprudential Policy through a Microprudential Lens," Borradores de Economia 1212, Banco de la Republica de Colombia.
    9. Juan Guillermo Bedoya Ospina, 2017. "Ciclos de crédito, liquidez global y regímenes monetarios: una aproximación para América Latina," Revista Desarrollo y Sociedad, Universidad de los Andes,Facultad de Economía, CEDE, vol. 78.
    10. Esteban Gómez & Angélica Lizarazo & Juan Carlos Mendoza & Andrés Murcia, 2017. "Evaluating the Impact of Macroprudential Policies in Colombia's Credit Growth," Borradores de Economia 980, Banco de la Republica de Colombia.
    11. Ybrayev, Zhandos & Baizakov, Azamat & Kailrullayev, Erlan & Mukhambetzhanova, Dana, 2025. "Macroprudential policy effectiveness and interaction with monetary policy: Lessons from debt service-to-income cap implementation in Kazakhstan," Economic Systems, Elsevier, vol. 49(1).
    12. Gómez, Esteban & Murcia, Andrés & Lizarazo, Angélica & Mendoza, Juan Carlos, 2020. "Evaluating the impact of macroprudential policies on credit growth in Colombia," Journal of Financial Intermediation, Elsevier, vol. 42(C).
    13. Sarmiento, Miguel & Galán, Jorge E., 2017. "The influence of risk-taking on bank efficiency: Evidence from Colombia," Emerging Markets Review, Elsevier, vol. 32(C), pages 52-73.

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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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