Drivers of Credit Losses in Australasian Banking

30 Pages Posted: 17 Jul 2007

See all articles by Kurt Hess

Kurt Hess

Independent Credit View

Arthur Grimes

Motu Economic and Public Policy Research Trust

Mark Holmes

University of Waikato - Management School, Department of Economics

Date Written: August 13, 2007

Abstract

Based on a comprehensive dataset retrieved from original financial reports of 32 Australasian banks (1980-2005), this paper explores factors affecting the credit loss experience of these institutions. It is found that the state of economy as measured by GDP growth and unemployment rate have the expected impact. Asset markets are also important, with the performance of the equity market showing greater explanatory power than property prices. Larger banks, on average, provide more for credit losses while less efficient banks have greater asset quality problems. Strong loan growth translates into significantly higher credit losses with a lag of 2-3 years. Finally, the results show strong evidence of income smoothing activities by banks.

Keywords: Banking, Credit Risk, Loan Loss Provisions, Australia, New Zealand

JEL Classification: G20, G21

Suggested Citation

Hess, Kurt and Grimes, Arthur and Holmes, Mark, Drivers of Credit Losses in Australasian Banking (August 13, 2007). 20th Australasian Finance & Banking Conference 2007 Paper, Available at SSRN: https://ssrn.com/abstract=1000296 or http://dx.doi.org/10.2139/ssrn.1000296

Kurt Hess (Contact Author)

Independent Credit View ( email )

Schweizergasse 21
Zürich, 8001
Switzerland

Arthur Grimes

Motu Economic and Public Policy Research Trust ( email )

19 Milne Terrace
Island Bay
Wellington 6002
New Zealand

Mark Holmes

University of Waikato - Management School, Department of Economics ( email )

Hamilton
New Zealand

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