During healthy economic/financial times, credit growth often happens without proper provisioning. This is due to a managerial myopia that underestimates the risks underlying an expansive lending policy, leading to lower profitability in following years. However, given the countercyclicality of credit standards, this effect shouldn’t occur during harsh times. In this paper, we analyse the relationship between abnormal credit growth and bank profitability during a crisis period. In particular, we test the hypothesis that during a crisis, abnormal credit growth improves bank profitability, given the need for higher, or at least stable, credit standards. We find support for this assumption using a sample of 101 large European banks observed during the recent crisis period. Results are robust to different robustness checks.

Rossi, S., Borroni, M., Piva, M., Lippi, A., Abnormal Loan Growth and Bank Profitability: Some Evidence from the Recent Crisis, <<INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT>>, 2019; (Vol 14/N. 7): 36-53. [doi:10.5539/ijbm.v14n7p36] [http://hdl.handle.net/10807/141382]

Abnormal Loan Growth and Bank Profitability: Some Evidence from the Recent Crisis

Rossi, Simone
Primo
;
Borroni, Mariarosa
Secondo
;
Piva, Mariacristina
Penultimo
;
Lippi, Andrea
Ultimo
2019

Abstract

During healthy economic/financial times, credit growth often happens without proper provisioning. This is due to a managerial myopia that underestimates the risks underlying an expansive lending policy, leading to lower profitability in following years. However, given the countercyclicality of credit standards, this effect shouldn’t occur during harsh times. In this paper, we analyse the relationship between abnormal credit growth and bank profitability during a crisis period. In particular, we test the hypothesis that during a crisis, abnormal credit growth improves bank profitability, given the need for higher, or at least stable, credit standards. We find support for this assumption using a sample of 101 large European banks observed during the recent crisis period. Results are robust to different robustness checks.
Inglese
Rossi, S., Borroni, M., Piva, M., Lippi, A., Abnormal Loan Growth and Bank Profitability: Some Evidence from the Recent Crisis, <<INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT>>, 2019; (Vol 14/N. 7): 36-53. [doi:10.5539/ijbm.v14n7p36] [http://hdl.handle.net/10807/141382]
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10807/141382
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