Loan Loss Provision: Some Empirical Evidence for Italian Banks

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

No 1459, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

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)
Pages: 38 p.
Date: 2015
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (6)

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Working Paper: Loan Loss Provision: Some Empirical Evidence for Italian Banks (2015)
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