Evergreening in banking

Getting Better? The Effect of the Single Supervisory Mechanism on Banks' Loan Loss Reporting and Loan Loss Reserves

“…In addition, we include liquidity and size as a measure of weakness and expect the coefficients of these variables also to be positive and significant. Niinimaki (2007) argued that during weak financial supervision bank's poor liquidity uncovers the possible window dressing behaviour, which strengthens our believes even more about the possible sign of this variable's coefficient. A large bank knows that it is more relevant for the economy, financial stability and more over to banking supervisors, which is why it would have a larger incentive not to engage in under-reserving or under-reporting practises.…”

“…Nevertheless, these characteristics should not have a significant effect on these variables except via incentives to underreserve or under-report losses. Niinimaki (2007) argues that a bank that is already hiding losses may choose to 'gamble for resurrection' by increasing lending excessively and in the process accepting a higher deposits rate to get funding. Motivated by this theoretical result, we also include bank's net interest margin in the analysis.…”

“…Our second research hypothesis is derived from the theoretical argument by Niinimaki (2007), where he stated that during weak bank supervision and poor transparency banks have a higher incentive to hide losses and affect the general view of bank's financial condition. As the implementation of the SSM can be seen as a clear attempt to unify and improve bank supervision, we have a natural experiment on the implications of the mentioned theoretical arguments.…”

Are Banks Engines of Export? Financial Structures And Export Dynamics

“…Soft budget constraint problems may also be more severe in countries in which bank managers are less subject to close supervisory scrutiny on their decisions, implying more freedom of bank managers to evergreen loans to borrowers (Arestis, de Paula and de Paula, 2008;Lardy, 1998). Bank managers may indeed have the incentive to conceal the status of loan portfolios by evergreening loans (Niinimaki, 2007).…”

Threshold Effect of Bank-specific Determinants of Non-performing Assets: An Application in Indian Banking

“…This might lead to ever-greening of loans where fresh loans are given to repay old loans and apparently bank’s balance sheets show a rosy picture which may not be the case, in reality. Niinimaki (2007) theorises gambling for resurrection that advocates in favour of growth of credit through rolling over previous bad debts 3 where worst loans are often considered those that are reported as current as banks roll over their old bad loans. Amidst these possibilities, we also conjecture that growth of credit might also influence NPAs of banks, whether good or bad.…”