This paper contributes to the existing literature on bank crisis and bank profitability by shedding light on “profitability shock” (i.e. a sudden and sizeable decline in profitability) and “profitability recovery” (i.e. returning to the previous level). Using a sample of 109 European bank holding companies over the years 2006-2016, we investigate the main drivers of these profitability shocks and the factors allowing banks to regain profitability and avoid a more severe crisis. Our findings show that (1) the profitability crisis has its roots in the lending activity and in the deterioration of the loan portfolio caused by a strong risk appetite that is not counterbalanced by adequate loan loss provisions and capitalization; (2) banks that recover after the profit shock adopt a more conservative lending policy, reduce their credit offer and tackle more effectively the NPL issue

Bongini, P., Cucinelli, D., Battista, M., Nieri, L. (2019). Profitability shocks and recovery in time of crisis evidence from European banks. FINANCE RESEARCH LETTERS, 30, 233-239 [10.1016/j.frl.2018.10.003].

Profitability shocks and recovery in time of crisis evidence from European banks

Bongini, Paola
Primo
;
Cucinelli, Doriana
Secondo
;
2019

Abstract

This paper contributes to the existing literature on bank crisis and bank profitability by shedding light on “profitability shock” (i.e. a sudden and sizeable decline in profitability) and “profitability recovery” (i.e. returning to the previous level). Using a sample of 109 European bank holding companies over the years 2006-2016, we investigate the main drivers of these profitability shocks and the factors allowing banks to regain profitability and avoid a more severe crisis. Our findings show that (1) the profitability crisis has its roots in the lending activity and in the deterioration of the loan portfolio caused by a strong risk appetite that is not counterbalanced by adequate loan loss provisions and capitalization; (2) banks that recover after the profit shock adopt a more conservative lending policy, reduce their credit offer and tackle more effectively the NPL issue
Articolo in rivista - Articolo scientifico
Bank profitabilityShocksBank crisisProfitability recovery
English
2019
30
233
239
reserved
Bongini, P., Cucinelli, D., Battista, M., Nieri, L. (2019). Profitability shocks and recovery in time of crisis evidence from European banks. FINANCE RESEARCH LETTERS, 30, 233-239 [10.1016/j.frl.2018.10.003].
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/214061
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