Commercial Bank Loan Loss Recoveries
We present a new approach to analyse historical recovery rates on distressed bank assets. Our approach uses banks’ reported impaired assets and the corresponding specific provisions. The dynamics and drivers of this credit loss recovery proxy are studied for a comprehensive sample of Australian banks from 1989 to 2005. We find that macroeconomic and bank-specific factors influence banks’ estimates of loan loss recoveries, consistent with banks smoothing their earnings. In contrast with findings based on prices of distressed corporate bonds, banks record lower recoveries in years of strong economic growth.
|Date of creation:||01 Nov 2009|
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- Edward Altman & Andrea Resti & Andrea Sironi, 2004. "Default Recovery Rates in Credit Risk Modelling: A Review of the Literature and Empirical Evidence," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 33(2), pages 183-208, 07.
- Kurt Hess & Arthur Grimes & Mark Holmes, 2009.
"Credit Losses in Australasian Banking,"
The Economic Record,
The Economic Society of Australia, vol. 85(270), pages 331-343, 09.
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- Douglas K. Pearce, 1983. "Stock prices and the economy," Economic Review, Federal Reserve Bank of Kansas City, issue Sep, pages 7-22.
- Jon Frye, 2000. "Depressing recoveries," Emerging Issues, Federal Reserve Bank of Chicago, issue Oct.
- Kanagaretnam, Kiridaran & Lobo, Gerald J & Mathieu, Robert, 2003. "Managerial Incentives for Income Smoothing through Bank Loan Loss Provisions," Review of Quantitative Finance and Accounting, Springer, vol. 20(1), pages 63-80, January.
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