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.
Original language | English |
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Pages (from-to) | 36-53 |
Number of pages | 18 |
Journal | INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT |
DOIs | |
Publication status | Published - 2019 |
Keywords
- bank profitability
- financial crisis
- loan growth
- loan loss provisions