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Credit Cycles, Credit Risk and Countercyclical Loan Provisions

Author

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  • Martha López

    ()

  • Fernando Tenjo Galarza

    ()

  • Hector Zárate

    ()

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 López & Fernando Tenjo Galarza & Hector Zárate, 2013. "Credit Cycles, Credit Risk and Countercyclical Loan Provisions," BORRADORES DE ECONOMIA 011092, BANCO DE LA REPÚBLICA.
  • Handle: RePEc:col:000094:011092
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    References listed on IDEAS

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    5. Gabriel Jiménez & Jesús Saurina, 2006. "Credit Cycles, Credit Risk, and Prudential Regulation," International Journal of Central Banking, International Journal of Central Banking, vol. 2(2), May.
    6. Martha López & Fernando Tenjo & Héctor Zárate, 2012. "The Risk-taking Channel in Colombia Revisited," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, vol. 30(68), pages 276-295, June.
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    11. Ian Christensen & Ali Dib, 2008. "The Financial Accelerator in an Estimated New Keynesian Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 155-178, January.
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    Citations

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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    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. 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.
    6. Esteban Gómez & Angélica Lizarazo & Juan Carlos Mendoza & Andrés Murcia Pabón, 2017. "Evaluating the impact of macroprudential policies on credit growth in Colombia," BIS Working Papers 634, Bank for International Settlements.
    7. 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-CEDE, vol. 78, February.

    More about this item

    Keywords

    Ex ante credit risk; credit cycles; countercyclical provisioning;

    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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