Paper #1737

Títol:

Forward looking loan provisions: Credit supply and risk-taking

Autors:

Bernardo Morais, Gaizka Ormazabal, José-Luis Peydró, Mónica Roa i Miguel Sarmiento

Data:

Agost 2020

Resum:

We show corporate-level real, financial, and (bank) risk-taking effects associated with calculating loan provisions based on expected-rather than incurred-credit losses. For identification, we exploit unique features of a Colombian reform and supervisory, matched loan-level data. The regulatory change induces a dramatic increase in provisions. Banks tighten all new lending conditions, adversely affecting borrowing-firms, with stronger effects for risky-firms. Moreover, to minimize provisioning, more affected (less-capitalized) banks cut credit supply to risky-firms- SMEs with shorter credit history, less tangible assets or more defaulted loans-but engage in "search-for-yield" within regulatory constraints and increase portfolio concentration, thereby decreasing risk diversification.

Paraules clau:

Loan provisions, IFRS9, ECL, corporate real and credit supply effects of accounting, bank risk-taking

Codis JEL:

E31, G18, G21, G28.

Àrea de Recerca:

Finances i Comptabilitat

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