Credit Losses in Australasian Banking

32 Pages Posted: 21 Aug 2008

See all articles by Kurt Hess

Kurt Hess

Independent Credit View

Arthur Grimes

Motu Economic and Public Policy Research Trust

Mark J. Holmes

University of Waikato - Management School, Department of Economics

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Date Written: August, 21 2008

Abstract

We analyse determinants of bank credit losses in Australasia. Despite sizeable credit losses over the past two decades, ours is the first systematic study to do so. Analysis is based on a comprehensive dataset retrieved from original financial reports of 32 Australasian banks (1980-2005). Credit losses rise when the macro economy is weak. Asset markets, particularly the equity market, are also important. Larger banks provide more for credit losses while less efficient banks have greater asset quality problems. Strong loan growth translates into significantly higher credit losses with a lag of 2-4 years. Finally, the results show strong evidence of income smoothing activities by banks.

Keywords: Banking, Credit Risk, Loan Loss Provisions, Australia, New Zealand

JEL Classification: G20, G21

Suggested Citation

Hess, Kurt and Grimes, Arthur and Holmes, Mark J., Credit Losses in Australasian Banking (August, 21 2008). 21st Australasian Finance and Banking Conference 2008 Paper, Available at SSRN: https://ssrn.com/abstract=1245582 or http://dx.doi.org/10.2139/ssrn.1245582

Kurt Hess (Contact Author)

Independent Credit View ( email )

Schweizergasse 21
Zürich, 8001
Switzerland

Arthur Grimes

Motu Economic and Public Policy Research Trust ( email )

19 Milne Terrace
Island Bay
Wellington 6002
New Zealand

Mark J. Holmes

University of Waikato - Management School, Department of Economics ( email )

Hamilton
New Zealand

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