Forward Looking Loan Provisions: Credit Supply and Risk-taking

Miguel Sarmiento (), Mónica Roa, Gaizka Ormazabal, Bernardo Morais and José-Luis Peydró
Authors registered in the RePEc Author Service: Jose-Luis Peydro

No 1199, Working Papers from Barcelona School of Economics

Abstract: e show corporate-level real, financial, and (bank) risk-taking effects associated with calculating loan provisions based on expected-rather than incurred-credit losses. For identification, we exploit unique features of a Colombian reform and supervisory, matched loan-level data. The regulatory change induces a dramatic increase in provisions. Banks tighten all new lending conditions, adversely affecting borrowing-firms, with stronger effects for risky-firms. Moreover, to minimize provisioning, more affected (less-capitalized) banks cut credit supply to risky-firms- SMEs with shorter credit history, less tangible assets or more defaulted loans-but engage in "search-for-yield" within regulatory constraints and increase portfolio concentration, thereby decreasing risk diversification.

Keywords: loan provisions; IFRS9; ECL; corporate real and credit supply effects of accounting; bank risk-taking (search for similar items in EconPapers)
JEL-codes: E31 G18 G21 G28 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-acc and nep-mac
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Forward Looking Loan Provisions: Credit Supply and Risk-Taking (2021)
Working Paper: Forward looking loan provisions: Credit supply and risk-taking (2020)
Working Paper: Forward Looking Loan Provisions: Credit Supply and Risk-Taking (2020)
Working Paper: Forward Looking Loan Provisions: Credit Supply and Risk-Taking (2020)
Working Paper: Forward Looking Loan Provisions: Credit Supply and Risk-Taking (2020)
Working Paper: Forward looking loan provisions: Credit supply and risk-taking (2020)
Working Paper: Forward looking loan provisions: Credit supply and risk-taking (2020)
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