BANK PROVISIONING BEHAVIOUR, PRO-CYCLICALITY AND CAPITAL MANAGEMENT IN SOUTH-EASTERN EUROPE
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Regulators and policymakers pay an increasing attention to the possible pro-cyclical nature of banks’ behaviour in provisioning. Loan-loss provisioning practices of banks are perceived as one of the sources of this pro-cyclicality. The main objective of this study is to provide the evidence on pro-cyclical behaviour and capital management of banks through loan-loss provisions in South-Eastern European countries for the period 2004 – 2015. Our results show that loan-loss provisions of banks are pro-cyclical; however, there is no evidence to indicate a relationship between loan-loss provisions and capital management. The findings suggest that a dynamic provisioning system would be beneficial if it is implemented in South-Eastern Europe. The results also show empirical evidence that loan-loss provisions are not used for income smoothing in banks in South- -Eastern Europe.
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