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Loan Loss Provision: Some Empirical Evidence for Italian Banks

Guglielmo Maria Caporale, Matteo Alessi (), Stefano Di Colli and Juan Sergio Lopez

No 5253, CESifo Working Paper Series from CESifo

Abstract: This paper uses data from a panel of more than 400 Italian banks for the period 2001 – 2012 to examine the main determinants of loan loss provision (LLP), which are classified as either discretionary (income smoothing, capital management, signalling) or non-discretionary (related to the business cycle). The results suggest that LLP in Italian banks is driven mainly by non-discretionary components, especially during the recession of 2008-2012, and is consistent with a countercyclical behavior of LLP. Further, it is generally less pro–cyclical (although not during the recent economic crisis) in the case of local banks: since their loans are more collateralised, their behaviour is more strongly affected by supervisory activity, their initial coverage ratio being lower than for other banks.

Keywords: loan loss provision; bank lending; financial system cyclicality (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2015
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