Loan-loss experience and risk-taking behavior at large commercial banks

Abstract

Net loan chargeoffs and nonperforming loans reflect realized credit risks for banks. These risks arise from either external factors such as depressed economic conditions (e.g., the energy and farm belts of the United States in the 1980s) or internal factors such as poor lending decisions (including fraudulent ones) or both. For large commercial banks in 1987, we find that almost 94 percent of the variation in loss rates within regions was due to banks having different loss rates on the same types of loans. Our regression results indicate that loan-loss rates in 1987 were positively associated with loan rates, volatile funds, and loan volume from the preceding three years. In contrast, banks with "adequate capital" in the preceding three years tended to have lower loss rates.

Determinants of Non-Performing Loans in Licensed Commercial Banks: Evidence from Sri Lanka

“…It therefore follows that commercial banks which extend relatively higher levels of credit are likely to incur lower non-performing loans. It is important to note that our results are contrary to most of researchers such as Jimenez et al (2005); Lis et al (2000) and Sinkey and Greenwalt (1991) However, similar findings are reported by Pasha and Khemraj (2009) and Al-Smadi and Ahmad (2009).…”

“…Ratio of loans to assets is positive and significant at one percent significant level. The finding is in line with Sinkey and Greenwalt (1991) who stated that banks that value profitability more than the cost of high risk that is represented by a high loan to asset ratio are likely to incur higher levels The coefficient estimates for Loan Growth is significant at 5 percent level, but showed an unexpected negative correlation. It therefore follows that commercial banks which extend relatively higher levels of credit are likely to incur lower non-performing loans.…”

“…Evidence of literature shows that ratio of loans to asset captures the risk appetite of banks as used by Sinkey and Greenwalt (1991). Banks with high provisions are those engaged in riskier activities which lead to a high level of NPL (Boudriga et al, 2009).…”

The Impacts of Non-Performing Loan on Profitability: An Empirical Study on Banking Sector of Dhaka Stock Exchange

“…Rather a defaulter takes into account probabilistic assessment of various costs and benefits of his decision. Lazy banking' critically reflects on banks' investment portfolio and lending policy (Reddy & Mohan, 2003); (Sinkey, 1991) and (Dash, 2010).…”

Econometric Study of Loan Classification of Commercial Banks in Bangladesh

“…Rather a defaulter takes into account probabilistic evaluation of a variety of costs and benefits of his decision. Lazy banking significantly reflects on bank's investment portfolio and lending policy (Reddy & Mohan (2003); Sinkey (1991) & Dash (2010.…”