Dynamic Loan Loss Provisions in Uruguay: Properties, Shock Absorption Capacity and Simulations Using Alternative Formulas

 
Author/Editor: Wezel, Torsten
 
Publication Date: May 01, 2010
 
Electronic Access: Free Full text (PDF file size is 2,325KB).
Use the free Adobe Acrobat Reader to view this PDF file

 
Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: This paper assesses the merits of countercyclical loan loss provisioning in Uruguay. Using a stress test methodology, it quantifies the protection against macroeconomic shocks provided by the stock of dynamic provisions accumulated since 2001 and finds that medium-sized shocks would be fully absorbed, offsetting the additional costs caused by rising specific provisions. In addition, the paper simulates the path of dynamic provisions under the formulas used in Spain, Peru and Bolivia, showing that the alternative paths diverge significantly from the actual buildup and in part better conform to the Uruguayan credit cycle.
 
Series: Working Paper No. 10/125
Subject(s): Banks | Business cycles | Credit risk | Economic models | Latin America | Loans | Uruguay

Author's Keyword(s): Dynamic Provisioning | Procyclicality | Latin America
 
English
Publication Date: May 01, 2010
Format: Paper
Stock No: WPIEA2010125 Pages: 22
Price:
US$18.00 (Academic Rate:
US$18.00 )
 
 
Please address any questions about this title to publications@imf.org