A Study of Loan Transfers and Regulatory Capital in the Banking Industry
Date Issued
2009
Date
2009
Author(s)
Yen, Chia-Liang
Abstract
The purpose of this study is to explore the relationship between loan transfers, including loan sales and securitizations, regulatory capital management and earning smoothing in the banking industry. Banks can focus on their core competencies and release the pressures by selling non-performing loans to AMC. Securitizing their loans can banks improve the structures of their assets and liabilities, as well as increase the methods of funding. Therefore, banks may transfer loans in the motivation of regulatory capital management, earning management, risk management, and funding.eferring to the method mentioned in Karaoglu (2005), this study conducts a research in the banking industry of Taiwan from 2003 to 2007. The empirical research shows that the gains or losses from loan transfers are significantly negatively associated with the regulatory capital ratio before the effect of gains or losses. Also, the gains or losses from loan transfers are significantly negatively associated with the change of return on assets ratios. These conditions represent that the more the regulatory capital ratios or the change of return on assets (before the effect of gains or losses) ratios are, the less the loan transfers gains or losses are. In addition, the shortfalls from last year’s income are significantly negatively associated with gains or losses from loan transfers. Consequently, it is supported that banks use gains or losses from loan transfers to manage regulatory capital and to smooth earnings.
Subjects
loan transfers
Non-performing loans
Securitization
Regulatory Capital Management
Earnings Smoothing.
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