Bank Loan Loss Provisions, Investor Protection and the Macroeconomy

Ozili, Peterson K (2018): Bank Loan Loss Provisions, Investor Protection and the Macroeconomy. Forthcoming in: International Journal of Emerging Markets , Vol. 3, No. 13 (2018)

Abstract

This study investigates the non-discretionary determinants of bank loan loss provisions in Africa after controlling for macroeconomic fluctuation, financial development and investor protection. We find that non-performing loans, loan-to-asset ratio and loan growth are significant non-discretionary drivers of bank provisions in the African region. We observe that bank provision is a positive function of non-performing loans up to a threshold beyond which bank provisions will no longer increase as non-performing loans increases. Also, bank loan-to-asset ratio is a significant driver of bank provisions when African banks have higher loan-to-asset ratios. Also, larger banks in financially developed African countries have fewer loan loss provisions while increase in bank lending leads to fewer bank provisions in countries with strong investor protection. Finally, higher bank lending is associated with higher bank provisions during economic boom. The findings have implications.

• Item Type: MPRA Paper
• Language: English
• Keywords: Loan Loss Provisions, Africa, Income Smoothing, Procyclicality, Economic Cycle, Investor Protection, Banks, Macroeconomy, Credit Risk, Financial Development
• Subjects: A - General Economics and Teaching > A1 - General Economics; A - General Economics and Teaching > A1 - General Economics > A11 - Role of Economics ; Role of Economists ; Market for Economists; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; F - International Economics > F3 - International Finance; F - International Economics > F3 - International Finance > F38 - International Financial Policy: Financial Transactions Tax; Capital Controls; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M2 - Business Economics > M21 - Business Economics; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M41 - Accounting

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