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Bank-Specific Determinants Of Sensitivity Of Loan-Loss Provisions To Business Cycle

Author

Listed:
  • Malgorzata Olszak

    (Department of Banking and Money Markets, Faculty of Management, University of Warsaw, Poland)

  • Iwona Kowalska

    (Department of Mathematics and Statistical Methods, Faculty of Management, University of Warsaw, Poland)

  • Patrycja Chodnicka-Jaworska

    (Department of Banking and Money Markets, Faculty of Management, University of Warsaw, Poland)

  • Filip Switala

    (Chair of Market Economy, Faculty of Management, University of Warsaw)

Abstract

In this paper we explore several new factors which may affect the procyclicality of loan-loss provisions. In particular, we test whether there are visible differences in sensitivity of loan-loss provisions to the business cycle between commercial and cooperative banks as well as between large, medium and small banks. We also aim to find out whether the level of bank capital ratio and the application of discretionary income-smoothing affect procyclicality of loan-loss provisions. Our results show that loan-loss provisions of banks are procyclical. This procyclicality is particularly visible and stronger in the sample of commercial banks. We also find that loan-loss provisions of large banks are more negatively affected by the business cycle than those of medium or small banks. We show that banks with low capital ratios exhibit increased procyclicality of loan-loss provisions. And finally, we also find empirical evidence that banks with a greater degree of discretionary income-smoothi

Suggested Citation

  • Malgorzata Olszak & Iwona Kowalska & Patrycja Chodnicka-Jaworska & Filip Switala, 2016. "Bank-Specific Determinants Of Sensitivity Of Loan-Loss Provisions To Business Cycle," Faculty of Management Working Paper Series 32016, University of Warsaw, Faculty of Management.
    • Handle: RePEc:sgm:fmuwwp:32016
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    loan-loss provisions; procyclicality; bank size; capital ratio; discretionary income-smoothing;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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