Credit Information Sharing and Loan Loss Recognition

66 Pages Posted: 8 May 2017 Last revised: 2 Feb 2018

See all articles by Karthik Balakrishnan

Karthik Balakrishnan

Rice University - Jesse H. Jones Graduate School of Business

Aytekin Ertan

London Business School

Date Written: December 20, 2017

Abstract

Does enhancing banks’ information sets and understanding of credit risks improve their loan loss recognition practices? We study this question using a global data set of staggered initiation of public credit registries (PCRs). Mandated by national regulators, PCRs collect borrower and loan information from lenders, and share it with the banks in the financial system. This setting represents a plausibly exogenous improvement in banks’ assessment of loss events. We find that PCR initiations enhance the timeliness of banks’ loan loss provisioning — the extent to which loan loss reserves capture subsequent nonperforming loans. The effects are greater when PCRs are easier to access, contain and distribute more information, and enforce compliance. These findings are consistent with improvements in lenders’ information sets leading to better provisioning decisions.

Keywords: credit reform, information sharing, banking, lending, loan loss recognition

JEL Classification: D82, G21, G28, G32, M41, O16

Suggested Citation

Balakrishnan, Karthik and Ertan, Aytekin, Credit Information Sharing and Loan Loss Recognition (December 20, 2017). Available at SSRN: https://ssrn.com/abstract=2964138 or http://dx.doi.org/10.2139/ssrn.2964138

Karthik Balakrishnan

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Aytekin Ertan (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom
442070008131 (Phone)

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