The role of loan loss provisions in income inequality: Evidence from a sample of banking institutions

Nicholas Apergis ()

Journal of Financial Stability, 2024, vol. 73, issue C

Abstract: This study explores the empirical link between income inequality and banks’ Loan Loss Provisions (LLPs) through a sample of banking institutions from 132 countries, applying a panel regression methodology. The evidence reveals that higher LLPs have a positive impact on income inequality, and the findings remain valid across various model specifications and income inequality measures. The results also hold against various robustness tests, such as different bank sizes, developed vs. emerging countries, the impact of the 2008 global financial crisis, and the controlling for risk. The implications are relevant for stakeholders, including regulators that endeavor to protect banking systems against expected and unexpected losses via LLPs. Specifically, since credit decisions have substantial effects on income inequality, regulators should mitigate the accumulation of LLPs, allowing more funds to be available for other banking system activities and functions.

Keywords: Loan Loss Provisions; income inequality; banks; panel data (search for similar items in EconPapers)
JEL-codes: C33 D63 E44 G21 O15 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:73:y:2024:i:c:s1572308924000846

DOI: 10.1016/j.jfs.2024.101299

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