Bank Loan Loss Provisioning During Election Years: Cross-Country Evidence

Abstract

I examine bank loan loss provisioning behaviour during election years - focusing on the effect of elections on banking sector loan loss provisioning. The findings reveal that the banking sectors in developed countries have higher loan loss provisions in election years. Also, income smoothing is present in election years which supports the income smoothing hypothesis. Also, banking sectors with high capital levels have higher loan loss provisions. Although there were no significant differences in bank loan loss provisioning during election years across the four bloc, the EU banking sectors and the banking sectors of BIS member-countries generally have higher loan loss provisions while the non-EU banking sectors and the banking sectors of the G7 member-countries generally have fewer loan loss provisions.

Keywords: Loan loss provisions, income smoothing; capital management; Europe; election; banks, nonperforming loans; bank profitability; credit risk; institutional factors; financial crisis;

JEL Classification: G21, G28