Credit Losses in Australasian Banking

13 Pages Posted: 8 Oct 2009

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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Abstract

We analyse the 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 banks with high cost-income-ratios show greater loan loss provisions. 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.

Suggested Citation

Hess, Kurt and Grimes, Arthur and Holmes, Mark J., Credit Losses in Australasian Banking. Economic Record, Vol. 85, Issue 3, pp. 331-343, September 2009. Available at SSRN: https://ssrn.com/abstract=1484284 or http://dx.doi.org/10.1111/j.1475-4932.2009.00551.x

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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