Shareholder shocks and loan loss provisions in Central European banks

Skała, Dorota

doi:10.1016/j.intfin.2020.101244

Cited by 2 publications

(27 citation statements)

References 59 publications

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“…Loans to TAs are positively linked with LLP suggesting that banks with larger loan portfolios set aside more LLPs, which is in accordance with Balla and Rose (2015), Davis et al (2020) and Danisman et al (2021). Large banks seem to provision more because the regression coefficient on ln(assets) is positive (in four out of five estimations) and statistically significant, which is line with Balla and Rose (2015) and in contrast to other papers, which, however, use a limited number of countries (Olszak et al, 2018;Simper et al, 2019;Skała, 2020). The positive regression coefficient on Unempl is further support for the procyclicality of LLP (Olszak et al, 2018;Simper et al, 2019).…”

Section: Ijoem 1812supporting

confidence: 75%

“…Second, regarding the procyclicality of LLPs, we follow Laeven and Majnoni (2003), Olszak et al. (2018) and Skała (2020) by defining procyclicality of LLPs as the response to LLPs to real gross domestic product growth (GDPG).…”

Section: Methods and Datamentioning

confidence: 99%

“…A positive coefficient on this variable implies better risk management (Laeven and Majnoni, 2003;Gebhardt and Novotny-Farkas, 2011;Olszak et al, 2017;Garc ıa-Osma et al, 2019;Di Fabio et al, 2021). The literature identifies both positive (Bouvatier and Lepetit, 2013;Olszak et al, 2018) and negative coefficients (Olszak et al, 2017;Meril€ ainen, 2019;Simper et al, 2019;Skała, 2020;Di Fabio et al, 2021) on this variable. Thus, we do not make definite predictions about this association in our sample.…”

Section: Procyclicalitymentioning

confidence: 99%

“…The other control variables are applied following the literature on LLP (see e.g. Bikker and Metzemakers, 2005;Fonseca and Gonz alez, 2008;Olszak et al, 2017Olszak et al, , 2018Meril€ ainen, 2019;Simper et al, 2019;Skała, 2020;Danisman et al, 2021). Loans to assets ratio is used to measure the link between LLP and credit risk of the whole lending portfolio of a bank.…”

Section: Procyclicalitymentioning

confidence: 99%

“…They include GDP growth in the analysis as a control variable and show the business cycle is negatively associated with LLP, indicating the procyclicality of LLPs. Skała (2020) shows that LLPs of 71 Central European foreign-owned banks are procyclical. This study also finds that negative macroeconomic shocks are paired with a lower level of LLP, but this effect disappears if the shock is wide and also encompasses banking sectors or capital markets.…”

Section: Relevant Literaturementioning

confidence: 99%

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Procyclicality of loan-loss provisions and competitive environment – a global perspective

Olszak

Kowalska

2022

IJOEM

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PurposeDespite the extensive debate on the impact of bank competition on risk-taking, there is no evidence of its role in procyclicality of loan-loss provisions (LLPs). The purpose of this study is to find out what is the role of competition in the procyclicality of LLPs.Design/methodology/approachUsing over 70,000 bank-level observations in 103 countries in 2004–2015 and the LLPs model, this study interacts competition with business cycle to check what is the effect of competition on procyclicality of LLPs.FindingsThis study finds that intense competition is associated with more procyclicality of LLPs. Increased procyclicality of LLPs in a more competitive environment is binding for high-income countries. The opposite effect is shown for low-income countries.Research limitations/implicationsFuture research can be extended by testing the role of additional factors – such as regulations, supervision or institutional protection of shareholders' rights, in the association between procyclicality and competition.Practical implicationsThe main message of this paper is that the competitive environment changes the procyclicality of LLPs. The results are important from the point of view of the COVID-19 pandemic because government interventions during lockdowns will affect competition in the banking industry and in other industries of the economy.Originality/valueThis paper contributes to the extant research in three dimensions. First, it shows that competition is an important factor behind procyclicality of LLPs. Second, it adds to the research on the links between competition and financial stability. Third, it shows that the link between competition and procyclicality of LLPs depends on the economic development of the country in which the banks are located.

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