Effects of Loan Loss Provisions on Growth in Bank Lending: Some International Comparisons

International Economics, Vol. 132, pp. 91-116, 2012

27 Pages Posted: 24 Aug 2010 Last revised: 22 Mar 2014

See all articles by Vincent Bouvatier

Vincent Bouvatier

University Paris-Est Créteil (UPEC) - ERUDITE

Laetitia Lepetit

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE)

Date Written: September 2012

Abstract

A dynamic provisioning system is one of the instruments that regulators could use for introducing counter-cyclicality into prudential regulation. The potential effectiveness of such instrument depends on how far actual backward-looking provisioning practices exacerbate growth in bank lending. We therefore investigate whether backward-looking provisioning practices amplify growth in bank lending and, if such an effect exists, whether there are differences in its magnitude across countries. Our results show that backward backward-looking provisioning systems exacerbate banks' lending fluctuations in both developed and emerging countries, but with a stronger impact for emerging countries. These results support the idea that countercyclical tools based on capital buffers might not be sufficient to dampen the cyclicality of bank lending, especially in emerging countries, and the implementation of a forward-looking provisioning system might be an important mandate.

Keywords: bank lending, loan loss provisions, procyclicality

JEL Classification: G21

Suggested Citation

Bouvatier, Vincent and Lepetit, Laetitia, Effects of Loan Loss Provisions on Growth in Bank Lending: Some International Comparisons (September 2012). International Economics, Vol. 132, pp. 91-116, 2012. Available at SSRN: https://ssrn.com/abstract=1663580 or http://dx.doi.org/10.2139/ssrn.1663580

Vincent Bouvatier

University Paris-Est Créteil (UPEC) - ERUDITE ( email )

Mail des Mèches
61 avenue du Général de Gaulle
Créteil Cedex, 94010
France

Laetitia Lepetit (Contact Author)

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE) ( email )

5 rue Felix Eboue
BP 3127
Limoges Cedex 1, 87031
France
+33555149213 (Phone)

HOME PAGE: http://www.unilim.fr/lape/

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