The provisioning experience of the major UK banks: a small panel investigation

Working Paper no. 177
By Darren Pain

Using panel regression analysis, the paper investigates what factors may help to explain increases in loan-loss provisions for the major UK banks. Explanatory variables reviewed include aggregate variables such as GDP growth as well as bank-specific factors such as the composition of the loan portfolio. The main findings are that a number of macroeconomic variables can indeed inform about banks’ provisions, in particular real GDP growth, real interest rates and lagged aggregate lending growth. Bank-specific behaviour is also important — increased lending to riskier sectors, such as commercial property companies, has generally been associated with higher provisions.

The provisioning experience of the major UK banks: a small panel investigation