Procyclicality of Loan Loss Provisions – The Case of Poland
Year: 2012
Type: preprint
Abstract: The recent debate over the role of prudential regulations in amplifying the cyclicality of bank lending focuses on two fundamental sources of it: capital adequacy regulations and loan loss provisioning system. Previous research shows that loan loss provisioning system can amplify the business cycle fluctuations, and its impact on it is even stronger than that of capital regulations. A dynamic model based on quarterly aggregated commercial banks data for the period 1998-2009 is used to determine if banking behavior, induced by the loan loss provisioning system in Poland, may amplify credit cycle fluctuations. The paper finds that provisioning in Poland is substantially higher when GDP growth is lower, which leads to the conclusion that Polish loan loss provisioning system is procyclical. This impact is not mitigated by earnings management.
Source: SSRN Electronic Journal
Author: Małgorzata Olszak
Institution: University of Warsaw
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2255669279