Loan Loss Provisions and Lending Behavior of Banks: Do Information Sharing and Borrower Legal Rights Matter?
Wahyoe Soedarmono,
Amine Tarazi,
Agusman Agusman (agusman@bi.go.id),
Gary S. Monroe and
Dominic Gasbarro (d.gasbarro@murdoch.edu.au)
Additional contact information
Agusman Agusman: bank indonesia - bank indonesia
Gary S. Monroe: UNSW - University of New South Wales [Sydney]
Dominic Gasbarro: Murdoch University [Perth]
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Abstract:
We examine the roles of information sharing and borrower's 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, not private credit bureaus managed by the private sector, might substitute for the role of dynamic provisioning systems in mitigating the procyclicality of non-discretionary provisions. We also document that higher discretionary provisions in countries with stronger legal rights for borrowers temper the procyclical effect of non-discretionary provisions. However, these findings hold only for small banks. This suggests that the implementation of dynamic provisioning systems to mitigate the procyclicality of non-discretionary provisions is more crucial for large banks.
Keywords: Information sharing; Loan loss provisions; Loan growth; Borrower’s legal rights (search for similar items in EconPapers)
Date: 2016-05-17
New Economics Papers: this item is included in nep-ban and nep-sea
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Working Paper: Loan Loss Provisions and Lending Behavior of Banks: Do Information Sharing and Borrower Legal Rights Matter? (2016)
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