claudia hazara - Academia.edu (original) (raw)

Papers by claudia hazara

This paper analyses the cyclical behaviour of bank credit, loan losses and provisions for loan lo... more This paper analyses the cyclical behaviour of bank credit, loan losses and provisions for loan losses in Spain. These three variables are strongly cyclical in Spain -as in many other countries-and this poses some problems to bank supervisors and regulators. In a context of strong competitive pressures, there is a tendency for loose bank credit conditions in an upturn in view of the low level of contemporaneous non-performing loans. This may contribute to an overextension of credit. The low quality of these loans will only become apparent with the ex post emergence of default problems, which will tend to appear during downturns, with an estimated lag of approximately three years in the case of Spain. On the other hand, loan loss provisions in Spain have traditionally had a pro-cyclical bias as they were largely linked to the volume of contemporaneous problem assets. Low provisioning in the upturn reveals that latent risks are not properly acknowledged and hence book profits are biased upwards during the upturn and downward during the downturn. The paper explains in detail the rationale and expected effects of the new loan loss provision -the so-called statistical provision-introduced recently by the Banco de España and aimed at an appropriate recording and recognition of expected losses. 2 See, for example, or . 3 See, for example, . However, net wealth not only affects credit supply, but also credit demand. 4 This kind of behaviour has been explained by disaster myopia , herd behaviour or as a result of perverse incentives, e.g. the existence of a safety net. 5 Although an appropriate indicator of total (real and financial) wealth of the non-financial private sector in Spain is not available, there are some incomplete but potentially useful indicators, which are presented in . 6 Structural changes in the Spanish economy (essentially liberalisation in the early period and EMU in the late period) mask the cyclical pattern of real interest rates. 7 In the case of share prices, they also tend to lead changes in GDP growth.

This paper analyses the cyclical behaviour of bank credit, loan losses and provisions for loan lo... more This paper analyses the cyclical behaviour of bank credit, loan losses and provisions for loan losses in Spain. These three variables are strongly cyclical in Spain -as in many other countries-and this poses some problems to bank supervisors and regulators. In a context of strong competitive pressures, there is a tendency for loose bank credit conditions in an upturn in view of the low level of contemporaneous non-performing loans. This may contribute to an overextension of credit. The low quality of these loans will only become apparent with the ex post emergence of default problems, which will tend to appear during downturns, with an estimated lag of approximately three years in the case of Spain. On the other hand, loan loss provisions in Spain have traditionally had a pro-cyclical bias as they were largely linked to the volume of contemporaneous problem assets. Low provisioning in the upturn reveals that latent risks are not properly acknowledged and hence book profits are biased upwards during the upturn and downward during the downturn. The paper explains in detail the rationale and expected effects of the new loan loss provision -the so-called statistical provision-introduced recently by the Banco de España and aimed at an appropriate recording and recognition of expected losses. 2 See, for example, or . 3 See, for example, . However, net wealth not only affects credit supply, but also credit demand. 4 This kind of behaviour has been explained by disaster myopia , herd behaviour or as a result of perverse incentives, e.g. the existence of a safety net. 5 Although an appropriate indicator of total (real and financial) wealth of the non-financial private sector in Spain is not available, there are some incomplete but potentially useful indicators, which are presented in . 6 Structural changes in the Spanish economy (essentially liberalisation in the early period and EMU in the late period) mask the cyclical pattern of real interest rates. 7 In the case of share prices, they also tend to lead changes in GDP growth.