I am analysing impact of BASEL 3 ratios on bank lending. (CAR) is showing a positive sign with bank lending and LR is showing -ve sign with bank lending. can both ratios have different signs with bank lending?
Yes, it is right because these ratios were increased to minimize the bank risk. Banks are expected to tighten the lending criteria to lend only low-risk loans.
Lending must be adequately supported (Economic Capital) by capital. Therefore, Increase in lending calls more increase in capital without that expansion in lending can not take place.
To minimize risk taking, Basel III Accord requires that Banks must support lending expansion with own capital and not funds from others.
In summary, Capital Adequacy Ratio and Lending Ratio will be negatively related to expansion in lending (Assets).
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