The effects of loan portfolio concentration on Brazilian banks' return and risk

Benjamin Tabak, Dimas Fazio and Daniel Cajueiro

Journal of Banking & Finance, 2011, vol. 35, issue 11, 3065-3076

Abstract: This paper tests whether diversification of the credit portfolio at the bank level leads to better performance and lower risk. We employ a new high frequency (monthly) panel data for the Brazilian banking system with information at the bank level for loans by economic sector. We find that loan portfolio concentration increases returns and also reduces default risk; the impact of concentration on bank's return is decreasing on bank's risk; there are significant size effects; foreign and state-owned banks seem to be less affected by the degree of diversification. An important additional finding is that there is an increasing concentration trend after the breakout of the recent international financial crisis, specially after the failure of Lehman Brothers.

Keywords: Loan; portfolio; composition; Focus; Diversification; Bank; return; Bank; risk; Emerging; markets (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (63)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426611001452
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The Effects of Loan Portfolio Concentration on Brazilian Banks' Return and Risk (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:35:y:2011:i:11:p:3065-3076

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().