Banks' concentration versus diversification in the loan portfolio: New evidence from Germany

Arbeitspapier

Using a unique data set on German banks' sector specific loan exposures to the real economy and the corresponding write-offs and write-downs, we examine the impact of loan portfolio sector concentration on credit risk. By controlling for common risk factors, we separate the bank-specific selection and monitoring abilities from the composition of the loan portfolio. In our empirical study for the period 2003-2011, we find that (a) banks which are specialized in certain industries have, on average, lower loan losses, (b) the loss rate of a given industry in a bank's loan portfolio is lower if the bank has major exposures to this industry, and (c) the standard deviation of the loan losses is lower in the case of more focused banks.

Object Details

• ISBN: 978-3-86558-995-8
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bundesbank Discussion Paper ; No. 53/2013

Classification and Topics

• Classification: Wirtschaft ; Portfolio Choice; Investment Decisions ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models ; Index Numbers and Aggregation; Leading indicators
• Subject: loan portfolio ; credit risk ; loan losses ; concentration

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Jahn, Nadya ; Memmel, Christoph ; Pfingsten, Andreas
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/91728
• Last update: 10.03.2025, 11:42 AM CET