Loan growth and riskiness of banks


Foos, Daniel ; Weber, Martin ; Norden, Lars

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URL: https://ub-madoc.bib.uni-mannheim.de/2985
URN: urn:nbn:de:bsz:180-madoc-29856
Document Type: Working paper
Year of publication: 2009
The title of a journal, publication series: Working papers
Volume: 142
Place of publication: Mannheim
Edition: Version July 10, 2009
Publication language: English
Institution: Business School > Sonstige - Fakultät für Betriebswirtschaftslehre
MADOC publication series: Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre (Weber) > Publications
Subject: 330 Economics
Classification: JEL: G21 G20 ,
Subject headings (SWD): Kreditwesen , Kreditrisiko , Bankenliquidität
Keywords (English): Bank lending , Credit risk , Loan losses , Bank profitability , Bank solvency
Abstract: We investigate whether loan growth affects the riskiness of individual banks in 16 major countries. Using Bankscope data from more than 16,000 individual banks during 1997-2007, we test three hypotheses on the relation between abnormal loan growth and asset risk, bank profitability, and bank solvency. We find that loan growth leads to an increase in loan loss provisions during the subsequent three years, to a decrease in relative interest income, and to lower capital ratios. Further analyses show that loan growth also has a negative impact on the risk-adjusted interest income. These results suggest that loan growth represents an important driver of the riskiness of banks.

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Foos, Daniel ; Weber, Martin ; Norden, Lars (2009) Loan growth and riskiness of banks. Open Access Working papers Mannheim 142 [Working paper]
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