Authors: Kurt Hess, Arthur Grimes
Produced for University of Waikato as University of Waikato Working Paper in Economics 09/09
We present a new approach to analyse historical recovery rates on distressed bank assets. Our approach uses banks’ reported impaired assets and the corresponding specific provisions. The dynamics and drivers of this credit loss recovery proxy are studied for a comprehensive sample of Australian banks from 1989 to 2005.
We find that macroeconomic and bank specific factors influence banks’ estimates of loan loss recoveries, consistent with banks smoothing their earnings. In contrast with findings based on prices of distressed corporate bonds, banks record lower recoveries in years of strong economic growth
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