Agusman

Loan Loss Provisions and Bank Lending Behavior: Do Information Sharing and Borrowers’ Legal Rights Matter?

We examine the roles of information sharing and borrower’s legal rights in affecting the procyclical effect of bank loan loss provisions. Based on a sample of Asian banks, our empirical results highlight that higher non-discretionary provisions reduce loan growth and, hence, non-discretionary provisions are procyclical. A closer investigation suggests that better information sharing through public credit registries managed by central banks, not private credit bureaus managed by the private sector, might substitute for the role of dynamic provisioning systems in mitigating the procyclicality of non-discretionary provisions. We also document that higher discretionary provisions in countries with stronger legal rights for borrowers temper the procyclical effect of non-discretionary provisions. However, these findings hold only for small banks. This suggests that the implementation of dynamic provisioning systems to mitigate the procyclicality of non-discretionary provisions is more crucial for large banks.

Loan Loss Provisions and Lending Behavior of Banks: Do Information Sharing and Borrower Legal Rights Matter?

In this paper, we examine the role of information sharing and borrower legal rights in affecting the procyclical effect of bank loan loss provisions. Based on a sample of Asian banks, our empirical results highlight that higher non-discretionary provisions reduce loan growth and hence, non-discretionary provisions are procyclical. A closer investigation suggests that better information sharing through public credit registries managed by central banks, but not private credit bureaus managed by the private sector, might substitute the role of a dynamic provisioning system in mitigating the procyclicality of non-discretionary provisions. We also document that higher discretionary provisions in countries with stronger legal rights of borrowers may temper the procyclical effect of non-discretionary provisions. However, these findings only hold for small banks. This suggests that the implementation of a dynamic provisioning system to mitigate the procyclicality of non-discretionary provisions is more crucial for large banks, because such procyclicality cannot be offset by strengthening credit market environments through better information sharing and legal rights of borrowers.

Off-Balance Sheet Derivatives and Banking Risk: Indonesian Evidence

In modern banking, off-balance sheet (OBS) activity has played a greater role in banking business following rapid technological advancement and some regulatory development. Even though OBS activity has given birth to some new business prospects, appropriate risk measurement needs to be assessed to know the risk entailed in this activity. In this paper, we examine how OBS derivatives affected the risk profile of both large as well as medium and small banks in Indonesia throughout 2010-2014. We use two risk definitions for our empirical examination, i.e. institutional bank’s total risk and systematic risk. Our findings reveal that the impacts of OBS derivatives on Indonesian banking sector vary depending on the bank size. OBS derivatives reduce total risk and systematic risk of large banking firms. For small and medium banks, nonetheless, they increase both of total and systematic risks.