The Determinants of Loan Loss Provisions: An Analysis of the Greek Banking System in Light of the Sovereign Debt Crisis

Platon Monokroussos, Dimitrios Thomakos, Thomas Alexopoulos and Eleni Lydia Tsioli
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Platon Monokroussos: Eurobank Ergasias S.A.
Eleni Lydia Tsioli: University of Cambridge

Chapter 9 in Non-Performing Loans and Resolving Private Sector Insolvency, 2017, pp 181-225 from Palgrave Macmillan

Abstract: Abstract The study utilizes a new set of macroeconomic and regulatory data to analyze the evolution of loan loss provisioning practices in the Greek banking system over the period 2005–2015. It explores the determinants of the aggregate loan loss reserves to total loans ratio, which reflects the accumulation of provisions net of write-offs and constitutes an important metric of the credit quality of loan portfolios. The empirical results suggest that domestic credit institutions respond relatively quickly to macroeconomic shocks though the latter’s effects on the provisioning behavior of the domestic banking system show significant persistence. Furthermore, the impact of macroeconomic shocks on the loan loss reserves ratio has become stronger (both in terms of magnitude and statistical significance) following the outbreak of the Greek sovereign debt crisis. From a macro policy perspective, this result indicates that a sustainable stabilization of macroeconomic conditions is a key precondition for safeguarding domestic financial stability. For a regulatory standpoint, it suggests that the possibility of macroeconomic regime-related effects on banks’ provisioning policies should be taken into account when macro prudential stress tests of the banking system are designed and implemented.

Keywords: Bank-specific determinants; Greek banking system; Loan loss provisions; Loan loss reserves; Macroeconomic determinants; Non-performing loans (search for similar items in EconPapers)
Date: 2017
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Related works:
Working Paper: The determinants of loan loss provisions:an analysis of the Greek banking systemin light of the sovereign debt crisis (2016)
Working Paper: The Determinants of Loan Loss Provisions: An Analysis of the Greek Banking System in Light of the Sovereign Debt Crisis (2016)
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DOI: 10.1007/978-3-319-50313-4_9

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