Does bank supervision impact nonperforming loans : cross-country determinants using agregate data ?

The paper empirically analyses the cross-countries determinants of nonperforming loans and the potential impact of regulatory factors on credit risk exposure. We employ aggregate banking, financial, economic and legal environment data for a panel of 59 countries over the period 2002-2006. Empirical results indicate that higher capital adequacy ratio and prudent provisionning policy seem to reduce the level of problem loans. We also report a desirable impact of private ownership, foreign participation and bank concentration. Our findings do not support the view that market discipline leads to better economic outcomes and to reduce the level of problem loans. In contrast, all regulatory devices either exert a counterproductive impact on bad loans or do not significantly enhance credit risk exposure for countries with weak institutions, corrupt business environment and little democracy.Our results are interesting for regulators, bankers and investors as well. To reduce credit risk exposure, the effective way to do it is through enhancing the legal system, strengthening institutions and increasing transparency and democracy, rather than focusing only on regulatory and supervisory issues.Banks, Nonperforming loans, Financial system stability, Banking regulation

What determines IPO underpricing ? Evidence from a frontier market

This paper empirically analyzes the short run performance of Tunisian initial public offerings (IPO). It sheds light on the determinants of IPO’s in a context of a frontier market characterized by high information asymmetry, low information efficiency, thin trading and the presence of “noise” traders. Using a sample of 34 Tunisian IPO’s from the period 1992-2008, we find that the average market adjusted initial return for the first three trading days is about 17.8 percent. The level of underpricing is related to retained capital, underwriter’s price support, oversubscription, listing delay and the offer price. Age of the firm, its size and the size of the offer do not seem to reduce the amount of money left on the table by issuers. It appears also that underpricing is driven by irrational investors (ipoers) seeking for short-run capital gains. These results remain unchanged after controlling for the presence of institutional investors and the existence of liquidity contract.Initial public offerings; Short-run underpricing; Underwriter’s price support.

Does bank supervision impact nonperforming loans : cross-country determinants using agregate data ?

The paper empirically analyses the cross-countries determinants of nonperforming loans and the potential impact of regulatory factors on credit risk exposure. We employ aggregate banking, financial, economic and legal environment data for a panel of 59 countries over the period 2002-2006. Empirical results indicate that higher capital adequacy ratio and prudent provisionning policy seem to reduce the level of problem loans. We also report a desirable impact of private ownership, foreign participation and bank concentration. Our findings do not support the view that market discipline leads to better economic outcomes and to reduce the level of problem loans. In contrast, all regulatory devices either exert a counterproductive impact on bad loans or do not significantly enhance credit risk exposure for countries with weak institutions, corrupt business environment and little democracy.Our results are interesting for regulators, bankers and investors as well. To reduce credit risk exposure, the effective way to do it is through enhancing the legal system, strengthening institutions and increasing transparency and democracy, rather than focusing only on regulatory and supervisory issues

What determines IPO underpricing ? Evidence from a frontier market

This paper empirically analyzes the short run performance of Tunisian initial public offerings (IPO). It sheds light on the determinants of IPO’s in a context of a frontier market characterized by high information asymmetry, low information efficiency, thin trading and the presence of “noise” traders. Using a sample of 34 Tunisian IPO’s from the period 1992-2008, we find that the average market adjusted initial return for the first three trading days is about 17.8 percent. The level of underpricing is related to retained capital, underwriter’s price support, oversubscription, listing delay and the offer price. Age of the firm, its size and the size of the offer do not seem to reduce the amount of money left on the table by issuers. It appears also that underpricing is driven by irrational investors (ipoers) seeking for short-run capital gains. These results remain unchanged after controlling for the presence of institutional investors and the existence of liquidity contract

Banking supervision and nonperforming loans: a cross-country analysis

Purpose – The purpose of this paper is to empirically analyse the cross-countries determinants of nonperforming loans (NPLs), the potential impact of supervisory devices, and institutional environment on credit risk exposure. Design/methodology/approach – The paper employs aggregate banking, financial, economic, and legal environment data for a panel of 59 countries over the period 2002-2006. It develops a comprehensive model to explain differences in the level of NPLs between countries. To assess the role of regulatory supervision on credit risk, the paper uses several interactions between institutional features and regulatory devices. Findings – The empirical results indicate that higher capital adequacy ratio (CAR) and prudent provisioning policy seems to reduce the level of problem loans. The paper also reports a desirable impact of private ownership, foreign participation, and bank concentration. However, the findings do not support the view that market discipline leads to better economic outcomes. All regulatory devices do not significantly reduce problem loans for countries with weak institutions, corrupt environment, and little democracy. Finally, the paper shows that the effective way to reduce bad loans is through strengthening the legal system and increasing transparency and democracy, rather than focusing on regulatory and supervisory issues. Practical implications – First, higher CARs results in less credit exposures. Second, international regulators should continue their efforts to enhance financial development. The results suggest that foreign participation plays an important role in reducing credit exposure of financial institutions. However, in developed countries, foreign entry led to more problem loans. Finally, to reduce credit risk exposure in countries with weak institutions, the effective way to do it is through enhancing the legal system, strengthening institutions, and increasing transparency and democracy. Originality/value – The paper contributes to the literature on banking regulation and supervision. It examines aggregated data which best reflect the level of NPL of the banks in a country as opposed to individual data included in databases that suffer from the problem of representativeness. It considers the impact of regulatory variables after controlling for bank industry factors that alter primarily problem loans. Finally, the paper examines the effectiveness of regulation through the inclusion of institutional factors.Banking, Credit, Loans, Regulation, Risk assessment

Loan loss reserves of weakly provisioned banks: evidence from major Tunisian banks

The aim of this study is to investigate the determinants of loan loss reserves of weakly provisioned banks. We use data on major Tunisian banks over the period 1998-2006. The results show that loan loss allowances are significantly driven by earnings management objectives and the general attitude toward risk. However, it appears that the quality of assets does not explain banks' provisioning policy. It seems also that weakly provisioned banks are less stringent in the control of their risks and are not fully in line with the banking regulation. Finally, our findings show a significant link between the provisioning for loan losses, economic conditions and fiscal reforms.weakly provisioned banks; loan loss reserves; financial system stability; banking regulation; Tunisia; loan loss allowances; earnings management; risk attitudes; provisioning policy; risk control; loan losses; economic conditions; fiscal reforms.