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Forward looking loan provisions: Credit supply and risk-taking

Bernardo Morais, Gaizka Ormazabal, Jose-Luis Peydro (), Monica Roa and Miguel Sarmiento ()

No 15278, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We 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: bank risk-taking; corporate real and credit supply effects of accounting; ECL; IFRS9; loan provisions (search for similar items in EconPapers)
JEL-codes: E31 G18 G21 G28 (search for similar items in EconPapers)
Date: 2020-09
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Related works:
Working Paper: Forward Looking Loan Provisions: Credit Supply and Risk-taking (2020) Downloads
Working Paper: Forward Looking Loan Provisions: Credit Supply and Risk-Taking (2020) Downloads
Working Paper: Forward Looking Loan Provisions: Credit Supply and Risk-Taking (2020) Downloads
Working Paper: Forward Looking Loan Provisions: Credit Supply and Risk-Taking (2020) Downloads
Working Paper: Forward looking loan provisions: Credit supply and risk-taking (2020) Downloads
Working Paper: Forward looking loan provisions: Credit supply and risk-taking (2020) Downloads
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