Loan Loss Provisions and Lending Behavior of Banks: Do Information Sharing and Borrower Legal Rights MatterReportar como inadecuado

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1 Universitas Siswa Bangsa Internasional, Faculty of Business - Sampoerna School of Business 2 LAPE - Laboratoire d-Analyse et de Prospective Economique 3 bank indonesia 4 University of New South Wales Sydney 5 Murdoch University, Australia

Abstract : In this paper, we examine the role of information sharing and borrower legal rights in affecting the procyclical effect of bank loan loss provisions. Based on a sample of Asian banks, our empirical results highlight that higher non-discretionary provisions reduce loan growth and hence, non-discretionary provisions are procyclical. A closer investigation suggests that better information sharing through public credit registries managed by central banks, but not private credit bureaus managed by the private sector, might substitute the role of a dynamic provisioning system in mitigating the procyclicality of non-discretionary provisions. We also document that higher discretionary provisions in countries with stronger legal rights of borrowers may temper the procyclical effect of non-discretionary provisions. However, these findings only hold for small banks. This suggests that the implementation of a dynamic provisioning system to mitigate the procyclicality of non-discretionary provisions is more crucial for large banks, because such procyclicality cannot be offset by strengthening credit market environments through better information sharing and legal rights of borrowers.

Keywords : Loan loss provisions loan growth information sharing borrower legal rights

Autor: Wahyoe Soedarmono - Amine Tarazi - Agusman Agusman - Gary S. Monroe - Dominic Gasbarro -



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