The Cyclicality of Loan Loss Provision in Brazilian Commercial Banks
Debates on banking regulation have increasingly given rise to a discussion on the relationship between the loan loss provision and business cycles. Provisioning rules for credit losses for banks in Brazil have mixed system characteristics, which could theoretically lead banks to pro-cyclical or cou...
Saved in:
| Main Authors: | , , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
FUCAPE Business School
2018-01-01
|
| Series: | BBR: Brazilian Business Review |
| Subjects: | |
| Online Access: | http://www.redalyc.org/articulo.oa?id=123056425003 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| _version_ | 1825207285597601792 |
|---|---|
| author | Antônio Maria Henri Beyle de Araújo Paulo Roberto Barbosa Lustosa José Alves Dantas |
| author_facet | Antônio Maria Henri Beyle de Araújo Paulo Roberto Barbosa Lustosa José Alves Dantas |
| author_sort | Antônio Maria Henri Beyle de Araújo |
| collection | DOAJ |
| description | Debates on banking regulation have increasingly given rise to a discussion on the relationship between the loan loss provision and business cycles. Provisioning rules for credit losses for banks in Brazil have mixed system characteristics, which could theoretically lead banks to pro-cyclical or countercyclical behavior, which reinforces the need for research to indicate what has actually been the effect of these provisions in the economy. The purpose of this paper is to analyze the relationship between banks’ provisioning for credit losses and business cycles in Brazil, in an attempt to confirm its nature, a condition capable of avoiding potentiating the effects of economic contraction or expansion. Using an econometric model with accounting and macroeconomic variables, the survey involved 91 commercial banks in the period from 2001 to 2012. Confirming that the delay in payments of principal and charges is a key condition for the recognition of banking provisions in Brazil, which highlights its predominantly retrospective nature, the results point to the existence of a pro-cyclical behavior by the banks surveyed, indicating that when GDP is on the rise, provisions tend to fall and vice versa. |
| format | Article |
| id | doaj-art-a14b3f70c5404249b6bbee725362f32c |
| institution | Kabale University |
| issn | 1807-734X |
| language | English |
| publishDate | 2018-01-01 |
| publisher | FUCAPE Business School |
| record_format | Article |
| series | BBR: Brazilian Business Review |
| spelling | doaj-art-a14b3f70c5404249b6bbee725362f32c2025-02-06T23:39:32ZengFUCAPE Business SchoolBBR: Brazilian Business Review1807-734X2018-01-0115324626110.15728/bbr.2018.15.3.3The Cyclicality of Loan Loss Provision in Brazilian Commercial BanksAntônio Maria Henri Beyle de AraújoPaulo Roberto Barbosa LustosaJosé Alves DantasDebates on banking regulation have increasingly given rise to a discussion on the relationship between the loan loss provision and business cycles. Provisioning rules for credit losses for banks in Brazil have mixed system characteristics, which could theoretically lead banks to pro-cyclical or countercyclical behavior, which reinforces the need for research to indicate what has actually been the effect of these provisions in the economy. The purpose of this paper is to analyze the relationship between banks’ provisioning for credit losses and business cycles in Brazil, in an attempt to confirm its nature, a condition capable of avoiding potentiating the effects of economic contraction or expansion. Using an econometric model with accounting and macroeconomic variables, the survey involved 91 commercial banks in the period from 2001 to 2012. Confirming that the delay in payments of principal and charges is a key condition for the recognition of banking provisions in Brazil, which highlights its predominantly retrospective nature, the results point to the existence of a pro-cyclical behavior by the banks surveyed, indicating that when GDP is on the rise, provisions tend to fall and vice versa.http://www.redalyc.org/articulo.oa?id=123056425003llpcyclicalitybusiness cycleloanscommercial banks |
| spellingShingle | Antônio Maria Henri Beyle de Araújo Paulo Roberto Barbosa Lustosa José Alves Dantas The Cyclicality of Loan Loss Provision in Brazilian Commercial Banks BBR: Brazilian Business Review llp cyclicality business cycle loans commercial banks |
| title | The Cyclicality of Loan Loss Provision in Brazilian Commercial Banks |
| title_full | The Cyclicality of Loan Loss Provision in Brazilian Commercial Banks |
| title_fullStr | The Cyclicality of Loan Loss Provision in Brazilian Commercial Banks |
| title_full_unstemmed | The Cyclicality of Loan Loss Provision in Brazilian Commercial Banks |
| title_short | The Cyclicality of Loan Loss Provision in Brazilian Commercial Banks |
| title_sort | cyclicality of loan loss provision in brazilian commercial banks |
| topic | llp cyclicality business cycle loans commercial banks |
| url | http://www.redalyc.org/articulo.oa?id=123056425003 |
| work_keys_str_mv | AT antoniomariahenribeyledearaujo thecyclicalityofloanlossprovisioninbraziliancommercialbanks AT paulorobertobarbosalustosa thecyclicalityofloanlossprovisioninbraziliancommercialbanks AT josealvesdantas thecyclicalityofloanlossprovisioninbraziliancommercialbanks AT antoniomariahenribeyledearaujo cyclicalityofloanlossprovisioninbraziliancommercialbanks AT paulorobertobarbosalustosa cyclicalityofloanlossprovisioninbraziliancommercialbanks AT josealvesdantas cyclicalityofloanlossprovisioninbraziliancommercialbanks |