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1
Shofiani, Prima. "ANALISIS INCOME SMOOTHING PADA PERBANKAN ISLAM NEGARA-NEGARA TELUK DI TIMUR TENGAH." Jurnal Ilmiah Akuntansi dan Keuangan 6, no. 2 (August 28, 2017): 55–64. http://dx.doi.org/10.32639/jiak.v6i2.91.
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Penelitian ini bertujuan menguji income smoothing menggunakan loan loss provision (LLP) pada perbankan Islam. Sampel penelitian ini adalah bank-bank Islam negara-negara Teluk Timur Tengah. Variabel dependen dalam penelitian ini adalah loan loss provision (LLP) dan variabel independen adalah total pembiayaan, non performing finance (NPF) dan capital adequacy ratio (CAR). Analisis data menggunakan regresi data panel dengan EViews 7. Hasil penelitian menunjukkan bahwa non performing finance (NPF) berpengaruh positif terhadap LLP. Total pembiayaan tidak berpengaruh positif terhadap loan loss provision (LLP) dan capital adequacy ratio (CAR) tidak berpengaruh positif terhadap loan loss provision (LLP).
Kata Kunci: loan loss provision (LLP), Income smoothing, Bank Islam
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Abu-Serdaneh, Jamal. "Bank loan-loss accounts, income smoothing, capital management, signaling and procyclicality." Journal of Financial Reporting and Accounting 16, no. 4 (December 3, 2018): 677–93. http://dx.doi.org/10.1108/jfra-06-2016-0041.
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Purpose The purpose of this paper is to investigate if Jordanian banks using provision accounts as a technique to smooth income, manage capital ratio, signal future earning and test other determinants affecting provision accounts. Design/methodology/approach The study was conducted on all Jordanian listed banks, and it covers the period 2005-2014. Different models are applied to test the dependent variables (loan loss provision [LLP] accounts) and its effects on different explanatory variables by using several statistical techniques (e.g. multiple regression). Findings The results show that there is no conclusive evidence supports that Jordanian banks used provision to smooth income, manage capital ratio or engage in pro-cyclical behavior. However, a positive and significant effect between one year ahead change in earnings and loan loss allowance, indicating that banks may use provisions to signal future positive changes in earnings. In addition, the results show that loan-to-asset ratio and beginning loan loss allowance have positive effect on provision accounts. Practical implications The results of this study are useful in assisting the regulators (e.g. US Securities and Exchange Commission, central bank) in efforts toward improving the quality of the reported financial reporting in the banking industry and focus on LLP management motivations. This study gives shareholders further insight which enables them to better understand the actions of managers and thus increase their control over their investments. Additionally, auditors should be aware of different incentives for using LLP as a tool of earnings management to be able to detect eventual manipulation of accounting earnings. Originality/value Banking in is one of the most stringently regulated of sectors and, furthermore, has a major impact on other sectors and on economic growth in general. In view of such importance, this study focuses on the banking industry and contributes to the literature in several ways. First, it represents the first known study, to the best of author knowledge, which examines if Jordanian banks use LLP accounts as a tool to smooth income and/or to manage capital. Second, unlike most existing research, which usually studies one aspect of LLP, this study focuses on four main motivations influencing provision accounts in the banks of Jordan. Third, additional tests were carried out to check the robustness of results, for example, sensitivity analysis is used to examine the change of findings by repeating of tests after using different proxies. Fourth, as a difference from other studies, this study investigates the effects of global financial crisis of 2008 on income smoothing behavior of Jordanian banking sector. Fifth, this paper provides a timely contribution to the continuous debate of the effect of LLP on earnings management in a poorly exploited setting, emerging market context.
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Zulfikar, Zulfikar, Mujiyati Mujiyati, Andy Dwi Bayu Bawono, and Sri Wahyuni. "Kebijakan Loan Loss Provision pada Pembiayaan Mudharaba dan dampaknya pada Kinerja Keuangan Bank Umum Syariah di Indonesia." Riset Akuntansi dan Keuangan Indonesia 4, no. 1 (April 29, 2019): 43–52. http://dx.doi.org/10.23917/reaksi.v4i1.7031.
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Penelitian ini menginvestigasi peran kebijakan loan loss provision (LLP) pembiayaan mudharabapada kinerja keuangan Bank Umum Syariah (BUS) di Indonesia. Structural Equation Modeling-Partial Least Square (SEM-PLS) digunakan untuk menguji keterkaitan loan loss provision dengankinerja keuangan pada 13 Bank Umum Syariah (BUS) selama 4,5 tahun. Analisis outer modelmenunjukkan bahwa probability of default dan loss given default merupakan faktor penentuloan loss provision. Sedangkan kinerja keuangan ditentukan oleh return on asset, nonperforming financial, net operating margin, dan biaya operasional terhadap pendapatanoperasional. Hasil penelitan ini menunjukkan bahwa loan loss provision berpengaruh langsungterhadap kinerja keuangan. Investigasi lebih lanjut menunjukkan bahwa pendapatanmudharaba berperan meningkatkan pengaruh loan loss provision terhadap kinerja keuangan(pengaruh tidak langsung).
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Bratten, Brian, Monika Causholli, and Linda A. Myers. "Fair Value Exposure, Auditor Specialization, and Banks’ Discretionary Use of the Loan Loss Provision." Journal of Accounting, Auditing & Finance 35, no. 2 (November 21, 2017): 318–48. http://dx.doi.org/10.1177/0148558x17742567.
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In this study, we examine whether banks’ use of the loan loss provision (LLP) to manage earnings is associated with (a) the extent to which banks hold assets subject to fair value reporting and (b) the use of an industry specialist auditor. We find that banks with a greater proportion of assets subject to fair value reporting (i.e., higher fair value exposure) use less LLP-based earnings management but more transaction-based earnings management (i.e., earnings management achieved by timing the realization of gains/losses). We also find that banks engaging industry specialist auditors use less LLP-based earnings management. Our findings suggest that banks’ use of the LLP to manage earnings is more limited when they have access to alternative earnings management tools and when they engage an auditor with more industry knowledge. Our results should be informative to regulators, members of the banking industry, and academics interested in the earnings management behavior of banks.
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Zheng, Changjun, Shumaila Meer Perhiar, Naeem Gul Gilal, and Faheem Gul Gilal. "Loan Loss Provision and Risk-Taking Behavior of Commercial Banks in Pakistan: A Dynamic GMM Approach." Sustainability 11, no. 19 (September 23, 2019): 5209. http://dx.doi.org/10.3390/su11195209.
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The paper analyzes the determinants of the loan loss provision (LLP) of 22 commercial banks in Pakistan from 2010 to 2017. The motive of the research is that LLP is a measure of credit risk as a proxy for bank risk-taking behavior profits and banks’ sustainability. Especially after the occurrence of a global financial crisis. The quantitative research method of data collection from Bureau Van Dijk’s BankFocus portal and the World Bank’s World Development Indicators. Other than considering specific bank variables such as capital adequacy ratio, return on average equity, and government securities, the effects of macroeconomic variable inflation and lending interest rates are explicitly studied. The model of pooled ordinary least squares (POLS), fixed effect (FE), panel corrected standard error (PCSE), and panel data estimation in the form of a general method of moments (GMM) two-step system is used to find the risk-taking behavior of banks in Pakistan. The results obtained by the use of inflation (INF) as an instrumental variable of LLP are highly dependable with a negative impact on loan loss provision. Lending interest rate (LIR) has a positive and significant relationship with LLP and contribute in the study of macroeconomic variables for bank risk-taking, excessive amount of interest rate was not beneficial for banks to earn profits especially during the economic crises. Return on average equity (ROAE) significantly moderates LLP with a negative interaction and helped the bank with profitable operations and save bank from solvency. Capital adequacy ratio (CAR) and government securities (GOV) are insignificant to LLP. The result is robust by measure of endogeneity, and highlights the important role of commercial banks’ sustainability to explain risk-taking behavior in Pakistan with the intention to increase profits after the occurrence of financial crises. The study further contributes to future research on managerial policy and decision making. In summary, the paper on loan loss provision has the capacity to forecast commercial banks’ credit risk for risk-taking in an emerging country.
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Islam, Fakir Tajul. "Evaluating Loan Loss Provisioning for Non-Performing Loans and Its Impact on the Profitability of Commercial Banks in Bangladesh." Asian Finance & Banking Review 2, no. 2 (December 21, 2018): 33–41. http://dx.doi.org/10.46281/asfbr.v2i2.222.
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Through the collection and disbursement of money, banks often face the risk of default of the loan. These Non-Performing loans (NPLs) should be identified and cared for avoiding vulnerability to other risk. Banks may mitigate this risk using loan loss provisioning (LLP). Using the aggregate data of 56 commercial banks in the last 9 years (2009-2017), this study attempts to evaluate the Impacts of LLP maintained for NPLs on profitability, as it may help to take the level of the LLP, and NPLs in the optimum level of business success. The dependent variables used in this study are Non-Interest Income to Total Assets and Net-Interest Income to Total Assets as a representative of the profitability of a bank. The dependent variables are analyzed using Least Square Multiple Regression on three independent variables, which were Gross NPL to Total Loans Outstanding, Loan Loss Provision Maintained, and Surplus/ (Shortfall) resulted from the required loan provisioning. The result showed that the profitability is very significantly influenced by the independent variables. NPLs and LLPs maintained by the commercial banks negatively related with the profitability of the business, especially LLPs shown statistical significance to impact on profitability negatively. it is better to take the LLPs and NPLs in the minimum level for maximum profitability of banks.
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Abdullah, Hasni, Imbarine Bujang, and Ismail Ahmad. "Loan Loss Provisions and Earnings Management in Malaysian Banking Industry." GATR Global Journal of Business Social Sciences Review 1, no. 1 (February 10, 2013): 93–104. http://dx.doi.org/10.35609/gjbssr.2013.1.1(10).
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Objective The main purpose of the study is to investigate the presence of earnings management incentive in affecting the LLP decision of commercial banks in Malaysia, focusing on the relation between loan loss provisions and earnings before tax and provisions. Methodology/Technique This study applies the pooled Ordinary Least Square model in assessing the determinants of the LLP. Findings The empirical findings clearly indicate that the LLP in Malaysian commercial banks is affected by earnings management for that particular period Type of Paper: Empirical paper Novelty : The expansion of the existing research in Malaysia in order to examine the extent to which the Malaysian banks engage in earnings and capital management, extends the period of investigation by considering the recent global financial crisis 2007-2009. Keywords: Loan Loss Provisions; Earnings Management; Capital Management; Macroeconomic Factors; Commercial Banks.
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Olson, Dennis, and Taisier A. Zoubi. "The determinants of loan loss and allowances for MENA banks." Journal of Islamic Accounting and Business Research 5, no. 1 (April 8, 2014): 98–120. http://dx.doi.org/10.1108/jiabr-07-2013-0027.
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Purpose – This study aims to examine the determinants of the allowance for loan losses (ALL) and loan loss provisions (LLP) for banks in the Middle East and North African (MENA) region using both a two-stage approach and simultaneous equation system to address the potential problem of estimation bias introduced by estimating the ALL and LLP separately. The paper also tests three competing hypotheses: the earnings management hypothesis, the capital management hypothesis, and the signaling hypothesis. Design/methodology/approach – The authors adopt a simultaneous equation and three-stage approaches to test whether MENA banks jointly determine LLP and ALL and the determinants of the two accounts. The sample consists of all available electronic data for 75 banks (451 bank-year observations) in nine MENA countries over the period 2000-2008. Findings – Evidence suggests that the two accounts are jointly determined. The results support the earnings management hypothesis – meaning that MENA banks have engaged in year-to-year income smoothing. The authors also find that LLP and ALL provide signals about future earnings. Research limitations/implications – The authors acknowledge that the LLP account is only one of many accounts on the income statement that could be used for signaling or to manage earnings, and that the ALL is one of several accounts that could be used for signaling, earnings or capital management. Future studies could examine other accruals for their role in managing earnings, signaling and capital. Practical implications – The results indicate that bank managers use LLP and ALL accounts to manage earnings management, policy makers may want to limit the ability of banks to manipulate earnings. Originality/value – Prior research on the loan loss accounting practices has been based on single equation models of the determinants of LLP and ALL. An issue that has not been adequately addressed in this literature is that ALL and LLP may be interrelated and jointly determined by banks. If the two accounts are not independent of each other, failure to include one when estimating the other may lead to an omitted variable problem, while including both in the same equation induces a potential simultaneity bias. The study is the first empirical work examining whether ALL and LLP are jointly determined by banks. By jointly estimating LLP and ALL, the study permits an assessment of the magnitude of the potential error from adopting ordinary least squares estimation of a single equation model.
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Desta, T. S. "Consequence of loan loss provisions on earnings management behaviour: A study on the best African commercial banks." South African Journal of Business Management 48, no. 3 (September 29, 2017): 1–11. http://dx.doi.org/10.4102/sajbm.v48i3.31.
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This study aimed at analysing the relationship between loan loss provision (LLP) and earnings management in the African commercial banks. The study selected the 11 banks among the 32 best commercial banks as identified by the Global Finance Magazine in 2014. These 11 banks are available online in the Bureau van Dijk Bankscope data and helped observe 10 years (2004-2013, of which 2003 is the base) financial statements, which accounts 34.38% of the 32 best banks. Accounting data derived from 11 years audited financial statements were used; 110 bank-year observations. A two stage panel regression, partial and pairwise correlation, and independent t-test were applied in order to analyse the relationship between the discretionary LLP (DLLP) and earnings management. Accordingly, the study found that loan to deposit (LD), return on asset (ROA), and earnings before tax and provision (EBTP) significantly influence the DLLP. Besides, banks with high premanaged earnings and well-capital more indulge in the DLLP. The study supports empirical findings on income smoothing and external financing hypotheses, but not the capital management hypothesis. Finally, further research on this topic is recommended, among others, by taking relatively large bank-year observations.
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Yang, Dong-Hoon. "Signaling through Accounting Accruals vs. Financial Policy: Evidence from Bank Loan Loss Provisions and Dividend Changes." Review of Pacific Basin Financial Markets and Policies 12, no. 03 (September 2009): 377–402. http://dx.doi.org/10.1142/s0219091509001678.
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This study examines substitution or complementarity relationships between discretionary loan loss provisions (LLP) and dividend signals. The statistical tests and results presented in this study indicate that bank managers may signal simultaneously with an accounting policy (i.e., discretionary LLP) and a financial policy (i.e., dividend change). This finding primarily points out the possibility that a bank manager with an incentive to mitigate asymmetric information can select multiple signals to maximize signaling effects. Thus, LLP signaling is a complementary (rather than a substitute) signaling device of dividend signaling.
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Siueia, Tito Tomas, and Wang Jianling. "Loan Loss Provisions, Income Smooth, Signaling, Capital Management and Pro-Cyclicality. Empirical Evidence from Mozambique’s Commercial Banks." International Journal of Economics and Finance 9, no. 11 (October 7, 2017): 48. http://dx.doi.org/10.5539/ijef.v9n11p48.
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The aim of this study is to provide the first empirical evidence of income smoothing, capital management, signaling, and pro-cyclical behavior through loan loss provisions (LLP) for Mozambican commercial Banks, an example of the under-developed country. A second goal is to understand the bank lending behavior during the Mozambique’s hidden public debt crisis. The sample consists of all commercial banks observed during 2010-2016. We provide strong evidence that Mozambican commercial banks are pro-cyclical through LLP and these banks engage in income smoothing activity. However, for capital management activity and signaling behavior, we provide insignificant evidence to support these hypotheses among Mozambican commercial banks via LLP. Also, the result indicates that Mozambique’s hidden public debt crisis, the commercial banks put aside more provisions.
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Mangala, Deepa, and Neha Singla. "Quality of Reported Earnings: An Empirical Study of Indian Banking Industry." Vision: The Journal of Business Perspective 25, no. 2 (February 19, 2021): 159–67. http://dx.doi.org/10.1177/0972262920983963.
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Earnings management (EM) practices by bank managers can prove to be very precarious in smooth running of the financial system of a country. The failure of financial system shocks the entire economy. The present paper aims to assess the quality of earnings in the Indian banking industry. EM is estimated by employing a bank-specific model that measures EM through loan loss provision (LLP) and realized security gains and losses (RSGL). The findings exhibit that public banks practice income increasing and private banks practice income decreasing EM, whereas, combined result reinforces the practice of income decreasing EM. The results indicate that public sector banks use both LLP and RSGL to manage earnings whereas private sector banks increasingly rely on RSGL. Further, direction of EM is gauged by classifying EM on the basis of quartiles. This study has implication for regulators, investor and depositors. Regulators should be stricter regarding policies of LLP. Apart from earnings, investor and depositors should be considered other measures of stability of banks like capital adequacy ratio because earnings may be manipulated.
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Riahi, Youssef. "Examining the relationship between bank stability and earnings quality in Islamic and conventional banks." International Journal of Islamic and Middle Eastern Finance and Management 13, no. 5 (August 10, 2020): 803–26. http://dx.doi.org/10.1108/imefm-10-2018-0328.
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Purpose The purpose of this paper is to investigate the effect of earnings quality on banking stability in Gulf Cooperation Council countries. First, the author isolates the discretionary loan loss provision (DLLP) to investigate the impact of total LLP, DLLP, discretionary accruals and a small positive variation in net income on bank stability. Second, the author investigates differences that may exist between Islamic banks (IBs) and conventional banks (CBs) in terms of the impact of DLLP on bank stability. Design/methodology/approach This research is based on unbalanced panel data for 39 IBs and 64 CBs in the six Gulf Cooperation Council countries over the 2000–2014 period. Findings The findings indicate that the extent of stability is negatively associated with the level of DLLP. This study also found significant differences between the two banking sectors in the effect of DLLP on bank stability. Practical implications This study has various practical implications. First, it provides insights for governments and regulators about introducing instruments like borrower restrictions and dynamic provisions to reduce LLP, because it negatively affects banking stability. Second, bankers should carefully assess the effects of their LLP strategies to overcome any negative effects. Third, the findings are also relevant to shareholders, investors and bank customers. More specifically, the results will help to improving their understanding of how LLP is not a financial strength and it is subject to managers’ opportunism that can lead to a financial instability. Finally, this study’s results encourage researchers to investigate an unexplored question, namely, the procyclicality of LLP and its determinants and effects. Originality/value To the best of the author’s knowledge, this is the first study to investigate differences that may exist between Islamic and CBs in terms of the impact of DLLP on bank stability.
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Vuković, Sanja. "Stress Testing of the Montenegrin Banking System with Aggregated and Bank-Specific Data." Journal of Central Banking Theory and Practice 3, no. 2 (May 1, 2014): 85–119. http://dx.doi.org/10.2478/jcbtp-2014-0012.
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Abstract There are many different approaches to the process of stress testing and two of them will be investigated in this paper. The first one is a stress test performed on aggregated data i.e. the banking system as a whole. The variable of interest in both exercises is the Loan Loss Provision ratio (hereinafter: the LLP). The main goal of the thesis is to find an answer to the following question: what are the macroeconomic variables that influence LLP the most and how will LLP, as a variable of interest, behave in a situation when all these variables were to experience negative performance at the same time? The resilience of the banking system to such scenario will be tested through the capital adequacy ratio. In order to find out more about the management practices of banks, microlevel data on banks were also used in the analysis. The focus was to see which of the variables are able to explain the LLP ratio for each bank individually and how is this information helpful for possible improvements in the banking sector. The relations between these variables will be able to explain some of the banks’ losses and some of the banks’ practices regarding credit activities. The analysis there will provide for some recommendations for the banks but also for the Central Bank and its way to influence the practices in the banking sector.
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Ben Othman, Hakim, and Hounaida Mersni. "The use of discretionary loan loss provisions by Islamic banks and conventional banks in the Middle East region." Studies in Economics and Finance 31, no. 1 (February 25, 2014): 106–28. http://dx.doi.org/10.1108/sef-02-2013-0017.
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Purpose – The purpose of this paper is to study earnings management practices of Islamic banks and conventional banks in the Middle East region. First, the authors examine factors that may influence Islamic banks managers' use of discretion in reporting loan loss provisions (LLP). Second, the authors investigate differences that may exist between Islamic banks and non-Islamic banks in terms of discretionary loan loss provisions (DLLP) used to manipulate accounting earnings. Design/methodology/approach – This empirical study uses an unbalanced panel data of 21 Islamic banks, 18 conventional banks with Islamic windows and 33 conventional banks, from seven Middle East countries during a period that ranges from 2000 to 2008. The authors use a two-stage approach in order to examine factors that may influence the use of discretion by Islamic banks' managers. Findings – The empirical results reveal that Islamic banks use DLLP for both earnings and capital management. External financing is also found to be a determinant of DLLP. Additional findings show no significant differences among Islamic banks, conventional banks with Islamic windows and conventional banks in using DLLP. These three groups of banks behave similarly in terms of discretion based on DLLP. Practical implications – The findings are potentially useful for regulators, auditors and investors. This study provides regulators with insights to strengthen their financial regulations in order to improve accounting quality. In addition, it helps auditors when considering the provisioning policies adopted by banks in order to detect specific manipulations of accounting earnings. The results may also help investors to focus on the impact of managerial discretion on accounting earnings for evaluation purposes. Originality/value – This study contributes to the literature on Islamic banking. On the one hand, it extends prior research by examining the discretionary component of LLP, instead of being restricted to total LLP. On the other hand, it compares the use of discretion among three groups of banks: full Islamic banks, conventional banks with Islamic windows and full conventional banks.
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Ishak, Gos, Farah Margaretha Leon, and Bahtiar Usman. "Did Asset Securitization Affect the Banking Financial Performance?" European Journal of Business and Management Research 6, no. 1 (January 7, 2021): 6–10. http://dx.doi.org/10.24018/ejbmr.2021.6.1.666.
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This study investigates the impact of asset securitization on banking financial performance. The authors examined the effect between the independent variables (Asset-backed securities (ABS), Loan Loss Provisions (LLP), and Size), and the dependent variable (Return on Assets (ROA), Size has a moderating variable effect on Return on Assets.
The banks improved profitability (ROA) by selling their loans receivable portfolio to the capital market to get liquidity. Furthermore, the bank significantly changed the role of acting as intermediaries between borrowers and depositors for the last decade. The authors used a sample of 12 commercial banks from Southeast Asian Countries and the regression model used for panel data analysis from 1998 to 2018.
The results show that Asset-backed securities have found a significant positive Return on Assets. However, some empirical evidence found that asset securitization increases Profitability decreases Loan Loss Provisions and reduces bank securitization’s default risk.
For future research, it is recommended to explore several variables to get a better result bank’s financial performance, such as Return on Equity, Debt to Equity Ratio, and Net Interest Margin.
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Kanagaretnam, Kiridaran, Gopal V. Krishnan, and Gerald J. Lobo. "An Empirical Analysis of Auditor Independence in the Banking Industry." Accounting Review 85, no. 6 (November 1, 2010): 2011–46. http://dx.doi.org/10.2308/accr.2010.85.6.2011.
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ABSTRACT: We examine auditor independence in the banking industry by analyzing the relation between fees paid to auditors and the extent of earnings management through loan loss provisions (LLP). We also examine whether this relation differs across large banks whose managements are required under the Federal Deposit Insurance Corporation Improvement Act to evaluate internal control over financial reporting and whose auditors must attest to the effectiveness of such internal controls, and small banks that are not subject to those requirements. We find that unexpected auditor fees are unrelated to earnings management for large banks. For small banks, we find greater earnings management via under-provisioning of LLP by banks that pay higher unexpected total and nonaudit fees to the auditor. These results suggest that auditor fee dependence on the audit client is associated with earnings management via abnormal LLP and is a potential threat to auditor independence for small banks. Our findings are relevant to policymakers contemplating new regulations in light of the recent banking crisis.
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Ozili, Peterson K. "Bank earnings smoothing, audit quality and procyclicality in Africa." Review of Accounting and Finance 16, no. 2 (May 8, 2017): 142–61. http://dx.doi.org/10.1108/raf-12-2015-0188.
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Purpose The purpose of this paper is to empirically examine whether the way African banks use loan loss provisions (LLP) to smooth earnings is influenced by capital market motivations and the type of auditor, after controlling for non-discretionary determinants of provisions and fluctuations in the business cycle. Design/methodology/approach To test the income smoothing hypothesis, the model was estimated using panel least square with White’s robust standard error correction, as well as, with and without period fixed effect. Findings The findings support the income smoothing hypothesis and indicate that African banks use LLP to smooth earnings; listed African banks use LLP to smooth earnings to a greater extent compared to non-listed African banks, possibly, for capital market reasons; income smoothing via LLP is not reduced among African banks with Big 4 auditors; and after controlling for macroeconomic fluctuation, there is evidence that bank provisioning is procyclical with fluctuations in the business cycle. Research limitations/implications The findings have three implications. One, listed African banks smooth income because they are more visible to investors; investors do not view stock price fluctuations as a good signal. Securities market regulators in African countries should enforce strict disclosure rules that reduce earnings smoothing practices to improve the transparency of bank earnings in the region. Two, the presence of a Big 4 auditor did not improve the informativeness of LLP estimates among African banks. Three, the evidence for procyclical provisioning suggest the need for dynamic LLP system in Africa. Originality/value This paper is the first cross-country African study to investigate whether provisions-based income smoothing decreases with the presence of a Big 4 auditor. The findings indicate that this is not the case among African banks.
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Ulfa, Ice Maria, Bambang Subroto, and Zaki Baridwan. "Fair Value Accounting and Earnings Management Using LLP and Realized Gains and Losses: Study in Banking Industry Listed on Indonesia Stock Exchange." Jurnal Economia 14, no. 2 (October 1, 2018): 126–37. http://dx.doi.org/10.21831/economia.v14i2.19560.
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Abstract: Fair Value Accounting and Earnings Management Using LLP and Realized Gains and Losses: Study in Banking Industry Listed on Indonesia Stock Exchange. This study examines whether earnings management can be limited by the implementation of fair value accounting in banking industry. The main contribution of this study is providing provide empirical evidence about the impact of fair value accounting on earnings management in Indonesia. Earnings management is proxied by loan loss provision (LLP), the realized of gains and losses, and the trade-off between realized gains and losses and LLP following Bratten et al (2013). The study provides empirical evidence that earnings management is still performed by banks, by using LLP, realized gains and losses and also occurs trade-off between LLP and realized gains and losses as means to perform earnings management in accordance with the needs of management. If banks are exposed to fair value accounting, managers will have more flexibility in reporting banks’ financial performance to present a desired earning, by providing them with additional earning managements tools. These findings can be informative for policymakers, banking practitioners, and academics. Keywords: earnings management, fair value accounting, LLP, realized gains and losses, trade-off LLP and realized gains and losses.Abstrak: Akuntansi Nilai Wajar dan Manajemen Laba menggunakan CKPN dan Realized Gains and Losses: Studi pada Industri Perbankan yang terdaftar di Bursa Efek Indonesia. Studi ini bertujuan untuk meneliti apakah manajemen laba dapat dibatasi oleh penerapan akuntansi nilai wajar dalam industri perbankan. Kontribusi dari penelitian ini adalah untuk memberikan bukti empiris tentang dampak penerapan akuntansi nilai wajar pada manajemen laba di Indonesia. Manajemen laba diproksikan oleh cadangan kerugian penurunan nilai (CKPN), realized of gains and losses, dan trade-off antara realized of gains and losses dan CKPN mengikuti model penelitian Bratten et al (2013). Studi ini memberikan bukti empiris bahwa manajemen laba masih dilakukan oleh bank menggunakan CKPN, realized of gains and losses dan juga terjadi trade-off antara CKPN dan realized of gains and losses sebagai sarana manajemen laba sesuai dengan kebutuhan manajemen. Konsekuensi dari paparan bank terhadap akuntansi nilai wajar dapat meningkatkan fleksibilitas manajer dalam melaporkan penghasilan yang diinginkan dengan memberikan mereka alat manajemen laba. Temuan-temuan tersebut dapat bersifat informatif bagi pembuat kebijakan, anggota industri perbankan, dan akademisi. Kata kunci: manajemen laba, akuntansi nilai wajar, CKPN, realized gains and losses, trade-off CKPN dan realized gains and losses.
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Riahi, Youssef, and Yacine Hammami. "Accounting information and financial institutions’ credit spreads: the case of Tunisia." Journal of Applied Accounting Research 20, no. 1 (February 11, 2019): 2–21. http://dx.doi.org/10.1108/jaar-06-2017-0065.
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PurposeThe purpose of this paper is to investigate two research questions: do accounting reports provide information that helps bondholders assess credit risk of financial institutions? What are the relevant accounting variables related to financial institutions’ credit spreads?Design/methodology/approachThe authors estimate all models of credit spread by specifying fixed effects with year dummies.FindingsThe authors’ document that financial institutions’ cash flows and loan loss provisions (LLP) are significantly correlated with bond spreads. The authors observe that an increase in nondiscretionary LLP predicts an increase in credit spreads, as the former reflects a higher default risk. Bondholders also react negatively to an increase in discretionary LLP, viewed as evidence that a financial institution is engaged in opportunistic earnings or tax management. Finally, the authors demonstrate that the relationship between accounting data and credit spreads is stronger for high-yield bonds than for low-yield bond.Research limitations/implicationsThis study has certain limitations due to the sample size and data frequency.Practical implicationsFirst, this paper provides strong evidence to all market participants that financial accounting reports are useful in forecasting credit risk in emerging markets. Second, the paper highlights the importance of disclosure policies and accounting transparency of financial institutions in emerging markets. Third, the results are also of practical interest to standard setters and financial regulators. The latter should consider monitoring accruals, especially the discretionary component of LLP, to mitigate the effects of accounting manipulations and managers’ opportunism.Originality/valueFirst, the previous literature does not focus on financial institutions despite their key role in the economy. Second, the paper is the first to study the credit relevance of accounting information in emerging markets (Tunisia).
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Riahi, Youssef Mohamed. "How to explain the liquidity risk by the dynamics of discretionary loan loss provisions and non-performing loans? The impact of the global crisis." Managerial Finance 45, no. 2 (February 11, 2019): 244–62. http://dx.doi.org/10.1108/mf-12-2017-0520.
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PurposeThe purpose of this paper is to investigate the impact of discretionary loan loss provisions (DLLPs) and non-performing loans (NPLs) on the liquidity risk of both Islamic banks (IBs) and conventional banks (CBs) before and after the global crisis that hit nations belonging to the Gulf Cooperation Council (GCC).Design/methodology/approachThis empirical study uses balanced panel data on 16 IBs and 58 CBs operating in the six Gulf Cooperation states covering 2000–2014. The data were obtained from the Bankscope database and the banks’ annual reports.FindingsThe results indicate that NPLs affect liquidity risk differently across the banks – specifically, there is a significant difference in the funding and managing of liquidity between the two bank types. The authors find that the influence of DLLPs does not vary across the banks in the overall analysis and before the crisis. This finding provides insights into the unique nature of banking risks in dual banking systems. The authors also find that after the crisis, the discretionary LLPs affected liquidity risk differently across the banks.Practical implicationsThis study has several practical implications. First, the findings suggest that the Islamic Financial Services Board and other IBs regulators should reassess several regulations, principles and products in order to reduce their credit and liquidity risks. Second, the study emphasizes the need for banks to perform a careful assessment of the effects of their LLP policies. Finally, the findings are also relevant to bankers, as they provide empirical evidence on the effect of loan growth on bank liquidity, suggesting that bankers should improve their loan management.Originality/valueFirst, this is the first study to examine discretionary LLPs, NPLs and liquidity risk in IBs; it is also the first comparative study between Islamic and CBs. Second, the study provides evidence on how the global crisis impacted the banking sector and identifies some of the main determinants of liquidity risk for both Islamic and CBs operating in GCC countries.
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Martino, Giuseppe Di, Grazia Dicuonzo, Graziana Galeone, and Vittorio Dell'Atti. "Does the New European Banking Regulation discourage Earnings Management?" International Business Research 10, no. 10 (September 7, 2017): 45. http://dx.doi.org/10.5539/ibr.v10n10p45.
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In the recent past, the financial crisis has shown important lacks in the EU regulation relating to the banking sector, making the introduction of a unified regulatory framework necessary. Since June 2009 the European Council has recommended a “Single Rulebook”, that is a unique and harmonizing discipline applicable to all financial institutions in the Single Market, become effective on January 2014. This prudential discipline requires much more minimum capital, liquidity and information transparency and it defines format and minimum standards of contents.The aim of this research is to investigate the relation between the new mandatory disclosure and earnings management policies in banking sector realized through Loan Loss Provisions (LLP), the component of income statement mainly subject to manipulations, especially in form of earnings smoothing. Because the new integrated regulatory framework requires a more transparent disclosure, we expected that accruals manipulation (basically LLP) could be discouraged. The empirical analysis is based on a sample of 116 listed European banks over the period prior (2011-2012-2013) and after (2014-2015-2016) the effective date of the Single Rulebook. The evidence confirm our hypothesis suggesting that this banking reform discourages earnings manipulation and improves earnings quality, making financial reporting more useful for investors. The results are important to the regulatory institutions (such as European Union and European Central Bank) supporting more stringent discipline introduced by Basel III.
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Ali, Abdilatif Mao. "The impact of economic blockade on the performance of Qatari Islamic and conventional banks: a period-and-group-wise comparison." ISRA International Journal of Islamic Finance 12, no. 3 (October 14, 2020): 419–41. http://dx.doi.org/10.1108/ijif-04-2020-0083.
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Purpose This paper aims to empirically assess the performance of Islamic banks (IBs) and conventional banks (CBs) in Qatar before and after the imposition of the economic blockade on Qatar and the significance of the blockade’s subsequent impact. Design/methodology/approach This study focuses only on the domestic commercial banks comprising four IBs and five CBs operating in Qatar. The banks’ financial reports are used as a secondary source to generate data. A study period from 2015 to 2019, separated into pre-blockade and post-blockade periods and comprising data on a semi-annual basis, was examined. Financial ratios and t-tests are used to compare bank performance and test the significance level of the blockade, respectively. Findings Generally, the findings show that IBs slightly outperformed CBs. Solvency ratios show strong capitalization (measured by capital adequacy ratio, CAR) and external fund (measured by equity multiplier ratio, EMR) reliance of the banks, despite minor fluctuations. Yet, only the CAR of CBs has been significantly affected by the blockade. Profitability (measured by return on assets, ROA and return on equity, ROE) of both bank groups grew unsteadily over the period, but IBs remained more efficient (measured by operating efficiency, OEOI) than CBs. Liquidity ratios indicate almost similar depositor fund utilization (measured by loans to deposit ratio, LDR) and credit offering (measured by loans to assets ratio, LAR) by the banks. All three metrics were weakly impacted. In terms of asset quality, bad loans (measured by non-performing loans ratio, NPL) and provisions (measured by loan loss provisions, LLP) surged moderately post-blockade. The blockade affected both groups’ asset quality. Originality/value To the author’s knowledge, this is the first study to comparatively examine the performance of Qatari IBs and CBs during the latest economic embargo and their exposure to the crisis.
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Dantas, José Alves, and Otavio Ribeiro de Medeiros. "Quality Determinants of Independent Audits of Banks." Revista Contabilidade & Finanças 26, no. 67 (January 27, 2015): 43–56. http://dx.doi.org/10.1590/1808-057x201400030.
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Since DeAngelo's study (1981) on audit quality, the latter has been a topic well discussed in the international accounting literature; however, there is little evidence about audit quality in the financial market. In Brazil, studies on audit quality began only in the 2000s, although without a specific focus on banks. The purpose of this study was to identify the quality determinants of audit work in Brazilian banking institutions. Using the practice of earnings management as a proxy for audit quality - more specifically, the discretionary accruals related to the process of the constitution of the Loan Loss Provision (LLP) - tests were performed based on the quarterly information of commercial and multipleservice banks and savings banks from 2001 to 2012. Empirical tests have shown that the quality of audit work has several types of relationships as follows: negative with the client importance level for the auditor; negative with the works after the sixth year of the contract; positive with the establishment of the Audit Committee by the banks; positive with the judgment of punitive administrative proceedings against independent auditors; and positive with the level of rigor of the regulatory environment. Of the tested hypotheses, three were not confirmed empirically. The first hypothesis predicted an association between audit quality and the auditor degree of specialization in the banking industry. The second hypothesis predicted that audit quality would be negatively correlated with the degree of concentration of audit activity within the National Financial System (Sistema Financeiro Nacional - SFN). The third hypothesis predicted that audit quality would be lower when the auditorclient relationship is of a short term. The results of the study contribute to the debate concerning the role of auditors in the transparency and solidity of the financial system, including their role as a complementary or auxiliary supervisor.
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Ozili, Peterson K., and Erick R. Outa. "Bank earnings smoothing during mandatory IFRS adoption in Nigeria." African Journal of Economic and Management Studies 10, no. 1 (March 11, 2019): 32–47. http://dx.doi.org/10.1108/ajems-10-2017-0266.
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PurposeThe purpose of this paper is to examine the extent of bank earnings smoothing during mandatory International Financial Reporting Standards (IFRS) adoption in Nigeria, to determine whether mandatory IFRS adoption increased or decreased income smoothing among Nigerian banks.Design/methodology/approachThe authors employ panel regression methodology to estimate the association between loan loss provisions (LLPs) and bank earnings.FindingsThe authorse find that the mandatory adoption of IFRS is associated with lower earnings smoothing among Nigerian banks, which implies that Nigerian banks do not use LLPs to smooth reported earnings during the mandatory IFRS adoption period. The authors find evidence for earnings smoothing via LLP during voluntary IFRS adoption. Earnings smoothing is not significantly associated with listed and non-listed Nigerian banks during voluntary and mandatory IFRS adoption. Overall, the findings indicate that mandatory IFRS adoption improves the informativeness and reliability of LLPs estimate by discouraging Nigerian banks from influencing LLPs for earnings smoothing purposes during the mandatory IFRS adoption. The findings of this paper are relevant to the debate on whether IFRS reporting improves the quality of financial reporting among firms in Nigeria.Practical implicationsOverall, the findings indicate that mandatory IFRS adoption improves the informativeness and reliability of LLPs estimate by discouraging Nigerian banks from influencing LLPs estimates to smooth earnings during the period of mandatory IFRS adoption.Social implicationsThe implication of the study is that IFRS has higher accounting quality than local GAAP in Nigeria as it improves the quality and informativeness of accounting numbers (LLPs and earnings) reported by Nigerian banks during the period examined.Originality/valueThis study is the first attempt to focus on income smoothing during mandatory IFRS adoption in Nigeria.
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Basu, Sudipta, Justin Vitanza, and Wei Wang. "Asymmetric loan loss provision models." Journal of Accounting and Economics 70, no. 2-3 (November 2020): 101359. http://dx.doi.org/10.1016/j.jacceco.2020.101359.
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Hlawatsch, Stefan, and Sebastian Ostrowski. "Economic Loan Loss Provision and Expected Loss." Business Research 3, no. 2 (November 2010): 133–49. http://dx.doi.org/10.1007/bf03342719.
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Jasman, Jasman, Etty Murwaningsari, Sekar Mayangsari, and Susi Dwi Mulyani. "The Effect of Earnings Management and Signaling on Loss Loan Provision: The Role of Bank Capitalization." GATR Journal of Finance and Banking Review VOL. 6 (1) APRIL - JUNE 2021 6, no. 1 (July 7, 2021): 43–50. http://dx.doi.org/10.35609/jfbr.2021.6.1(1).
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Objective - Loan loss provision is an accrual for the banking industry, and therefore has a significant effect on bank accounting earnings and capital requirements. Previous studies showed inconsistent results for the relationship between earnings management, signaling, and loan loss provision. The difference in the results is thought to be caused by bank capitalization. Therefore, this study aims to investigate the role of bank capitalization on the effect of earnings management and signaling on loan loss provision. Methodology – The sample consists of 86 conventional banks in Indonesia for the period of 2015-2019. Furthermore, this study used panel data analysis of multiple regression. Findings – The results showed earnings management has no effect on loan loss provision. In contrast, signaling has a positive and significant effect. Although bank capitalization is not proven to weaken the effect of earnings management on loan loss provision, it strengthens the positive effect of signaling on loan loss provision. Novelty – This study proves that bank capitalization has an important role in moderating signaling impact on loan loss provision but not for the effect of earnings management. This is due to the potential for earnings management in banks is relatively low because banks are highly regulated entities and with regulated governance mechanisms limit the managers' discretionary accounting decisions. Type of Paper - Empirical Keywords: Bank Capitalization, Earnings Management, Signaling JEL Classification: G23, G32. URI: http://gatrenterprise.com/GATRJournals/JFBR/vol6.1_1.html DOI: https://doi.org/10.35609/jfbr.2021.6.1(1) Pages 43 – 50
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Alhadab, Mohammad, and Saba Alsahawneh. "Loan Loss Provision and the Profitability of Commercial Banks: Evidence from Jordan." International Journal of Business and Management 11, no. 12 (November 20, 2016): 242. http://dx.doi.org/10.5539/ijbm.v11n12p242.
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<p>The purpose of this study is to examine the impact of loan loss provision on the profitability of Jordanian commercial banks. While the impact of loan loss provision on the profitability of banks has been examined by prior research, this study is the first to examine this relationship using Jordanian data. By examining a Jordanian sample of 13 banks that listed on Amman Stock Exchange (ASE) over the period 2004-2014, this study provides the first evidence that loan loss provision has a negative impact on the profitability of Jordanian commercial banks. This evidence suggests that Jordan banks adjust their loan loss provision due to several motives and, this in turn, leads to negative consequences for their profitability. Return on assets (ROA) and return on equity (ROE) are employed as a proxy of the profitability in this study. </p>
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Zulfikar, Z., and Wahyuni Sri. "The impact of discretionary loan loss provision of sharia financing on financial performance." Banks and Bank Systems 14, no. 4 (November 28, 2019): 34–41. http://dx.doi.org/10.21511/bbs.14(4).2019.04.
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This study aims to investigate the role of discretionary loan loss provision of sharia financing on the Islamic commercial banks’ financial performance in Indonesia. Partial Least Squares-Structural Equation modeling (PLS-SEM) is used to examine the relationship between loan loss provisions and financial performance in 13 Islamic commercial banks for 4.5 years. The analysis of the outer model shows that the probability of default and loss given default are determinants of loan loss provision, while financial performance is determined by return on assets, non-performing financing, net operating margin, and operating costs on operating income. The results of this study indicate that loan loss provisions have a direct effect on financial performance. Further investigation shows that the return on sharia financing contributes to increasing the impact of loan loss provisions on financial performance (indirect influence). The findings contribute to the literature by showing that discretionary loan loss provision can occur in sharia financing. The study is very important in terms of awareness of management behavior related to financial performance. The study has implications for management policies related to the prerequisites of potential clients.
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Nguyễn Thị Thu, Hiền, and Tuấn Phạm Đình. "Factors Affecting the Loan Loss Provision in Vietnamese System of Commercial Banks." Journal of Asian Business and Economic Studies 222 (October 1, 2014): 89–106. http://dx.doi.org/10.24311/jabes/2014.222.06.
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Establishing loan loss provisions may affect bank’s profitability and capital adequacy ratio. The paper employs regression analysis to explore operations of loan loss provisions in Vietnamese commercial banks in 2008-2012 in its relationship with bank characteristics. The results show that loan loss provisions of Vietnamese commercial banks are positively related to size and proportion of bad debt and negatively related to financial risk ratio. The paper provides theoretical evidence of the opportunism in selection of accounting policy concerning loan risk management by Vietnamese bank managers.
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HUTAPEA, FABIO DANIEL, and Ardianto Ardianto. "PENGARUH PENYISIHAN PENCADANGAN ASET, KUALITAS KREDIT, DEWAN KOMISARIS, KOMITE AUDIT, UKURAN DAN KUALITAS AUDITOR TERHADAP MANAJEMEN LABA." Jurnal Ekonomi dan Bisnis Airlangga 30, no. 1 (September 30, 2020): 14. http://dx.doi.org/10.20473/jeba.v30i12020.14-28.
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Introduction: This research is aimed to prove whether the banking management did the earnings manipulation by loan loss provision, determination of non performing loan and whether the characteristics of supervisory organs in Good Corporate Governance would influence the earnings management practice.Methods: The data analysis method used in this study is moderated regression analysis. This research was conducted in Indonesia's banking sector from 2011 to 2013.Results: This research proves that loan loss provision, non performing loan, size of commisioner board, audit commitee meeting frequency have no affect to the earnings management. While bank size affect the earnings management significantly. The quality of auditor has no affect to the relation between loan loss provision, non performing loan to the bank’s earnings management.Conclusion and suggestion: Disclosure policies with respect to the criteria for granting management bonuses and the nature of transactions, requirements and restrictions on creditors regarding loans received by banks will complement research based on positive accounting theory in banking.
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Abedin, Md Thasinul. "The Embellishment of Bottom Line through Hyperbole of Accrued Earnings: A Case of Deliberate Earnings Management of a Non-bank Financial Institution Enlisted in Dhaka Stock Exchange and Chittagong Stock Exchange." Business and Management Studies 2, no. 4 (November 24, 2016): 42. http://dx.doi.org/10.11114/bms.v2i4.2009.
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The study has tried to find out the key parameters through which a non-bank financial institution can embellish its earnings. The study has found that loan loss provisions increases in line with the increase in loan and advances and interest suspense. Moreover, non-bank financial institutions always report other assets except accounts receivable figure which foreshadows an existence of deliberate inflation of earnings. The study has found a positive impact of total loan loss provisions and interest suspense on accrued income, a clear message that non-bank financial institutions always report more accrued earnings to safeguard their profit. Increase in accrued income in line with total loan loss provision and interest suspense is also validated by increase in accrued income with respect to other assets except accounts receivable figure even though the impact of other assets on accrued income is insignificant at 5% level, an accounting channel through which excess other assets except accounts receivable would be inflated for excess increase in accrued income. The study has deduced that other assets except accounts receivable is a reserve bank for discretionary inflation of earnings even though it is insignificant. The study has used time series monthly data of International Leasing and Financial Services Limited, a non-bank financial institution from 2009-2015 reported in the Statement of NBDC sent to Bangladesh Bank each month. Two-time series models have been used in this study. The first model has tried to find out the impact of loan and advances, interest suspense, and other assets except accounts receivable on total loan loss provision. In the first model, there is a significant impact of loan and advances, interest suspense, and other assets except accounts receivable on total loan loss provision. The second model has tried to discern the impact of total loan loss provision, interest suspense, and other assets on accrued income along with other independent variables namely-loan and advances, total fixed assets, and operating income. The study has found a significant positive impact of total loan loss provision and interest suspense on accrued income and insignificant impact of other assets except accounts receivable on accrued income. For both models, there is no long-run relationship among the variables.
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Haq, Sanzid A., Dung Viet Tran, and M. Kabir Hassan. "Discretionary Loan Loss Provision Behaviour and Banks’ Liquidity Creation." Asian Academy of Management Journal of Accounting and Finance 15, no. 2 (December 31, 2019): 119–54. http://dx.doi.org/10.21315/aamjaf2019.15.2.6.
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Hamisyah, Nurul, Djoko Setyadi, and Rizky Yudaruddin. "Dampak krisis dan kinerja keuangan terhadap loan loss provision." KINERJA 15, no. 1 (August 26, 2018): 14. http://dx.doi.org/10.29264/jkin.v15i1.2071.
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Araújo, Antônio, Paulo Lustosa, and José Dantas. "The Cyclicality of Loan Loss Provision in Brazilian Commercial Banks." Brazilian Business Review 15, no. 3 (May 1, 2018): 246–61. http://dx.doi.org/10.15728/bbr.2018.15.3.3.
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Azzali, Stefano, Luca Fornaciari, and Tatiana Mazza. "Income Smoothing via Loan Loss Provision in Credit Cooperative Banks." FINANCIAL REPORTING, no. 2 (January 2017): 33–54. http://dx.doi.org/10.3280/fr2016-002002.
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This research investigates whether income smoothing via loan loss provision is lower for Credit Cooperative Banks than for non-Credit Cooperative Banks. Using data collected from the financial reporting of a sample of private banks, and Ordinary Least Square models based on net income or its variation, as used by previous literature, we find that income smoothing through loan loss provision is lower in Credit Cooperative Banks than in banks with different ownership structures. Results remain the same using several robustness tests (decomposition of loans, quality of loans, change in economic growth, cluster and fixed effect, effect of financial crisis). Mutual ownership, smaller size, and the local boundaries that characterize Credit Cooperative Banks may reduce the need for managers to manipulate earnings. Our findings give a positive evaluation of the recent Italian Law No. 18/2016 which reforms Credit Cooperative Banks, and imply that benefits of Credit Cooperative Banks ownership structure may derive from the group structure which gives a higher level of stability and solidity.
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Yeh, Tsai-lien. "Bank loan loss provision decisions: Empirical analysis of Taiwanese banks." Journal of Financial Services Marketing 14, no. 4 (March 2010): 278–89. http://dx.doi.org/10.1057/fsm.2009.27.
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Tran, Dung Viet, M. Kabir Hassan, and Reza Houston. "Discretionary loan loss provision behavior in the US banking industry." Review of Quantitative Finance and Accounting 55, no. 2 (November 9, 2019): 605–45. http://dx.doi.org/10.1007/s11156-019-00854-z.
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Ashraf, Ali, M. Kabir Hassan, Kyle J. Putnam, and Arja Turunen-Red. "PRUDENTIAL REGULATORY REGIMES, ACCOUNTING STANDARDS, AND EARNINGS MANAGEMENT IN THE BANKING INDUSTRY." Buletin Ekonomi Moneter dan Perbankan 21, no. 3 (February 28, 2019): 367–94. http://dx.doi.org/10.21098/bemp.v21i3.975.
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We analyze if a change in accounting standard or a change in prudential regulationimpacts banks’ loan loss provision. We find that, in general, the banks using aprinciples-based accounting standard exhibit a lower level of earnings managementcompared to banks using a rules-based accounting standard. When a country movesfrom pro-cyclical macro-prudential regulations to a dynamic provisioning regime,banks are more likely to set aside a larger amount of loan loss provision for the purposeof income smoothing.
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Mamonov, M. E. "Hidden “holes” in the capital of banks and the supply of credit to the real sector of economy." Voprosy Ekonomiki, no. 5 (May 28, 2018): 49–68. http://dx.doi.org/10.32609/0042-8736-2018-5-49-68.
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Our analysis documents that the existence of hidden “holes” in the capital of not yet failed banks - while creating intertemporal pressure on the actual level of capital - leads to changing of maturity of loans supplied rather than to contracting of their volume. Long-term loans decrease, whereas short-term loans rise - and, what is most remarkably, by approximately the same amounts. Standardly, the higher the maturity of loans the higher the credit risk and, thus, the more loan loss reserves (LLP) banks are forced to create, increasing the pressure on capital. Banks that already hide “holes” in the capital, but have not yet faced with license withdrawal, must possess strong incentives to shorten the maturity of supplied loans. On the one hand, it raises the turnovers of LLP and facilitates the flexibility of capital management; on the other hand, it allows increasing the speed of shifting of attracted deposits to loans to related parties in domestic or foreign jurisdictions. This enlarges the potential size of ex post revealed “hole” in the capital and, therefore, allows us to assume that not every loan might be viewed as a good for the economy: excessive short-term and insufficient long-term loans can produce the source for future losses.
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McKee, Gregory, and Albert Kagan. "The Impact of Sarbanes–Oxley and Dodd–Frank Legislation on Loan Loss Provisioning in US Banks." Review of Pacific Basin Financial Markets and Policies 23, no. 04 (October 29, 2020): 2050028. http://dx.doi.org/10.1142/s0219091520500289.
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The Sarbanes–Oxley Act (SOX) of 2002 and the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act (DFA) were passed to address weaknesses in the internal control environment of the firm. Elements of these Acts reduce risky behavior of financial institutions by reducing informational asymmetry with borrowers. An important element of managing earnings quality in financial institutions is the loss provision, an annual expense set aside for uncollected loan and lease payments. These Acts affect the selection of loss provision expense levels in distinct ways. Using a dataset of community bank financial information observed between 1998 and 2017, it is shown that banks experience a complementary effect between SOX and DFA on loss provision expenses. Improved governance procedures to establish policy responses to nonperforming loans result in reduced expenses, whereas reduced information asymmetry tends to enhance a moral hazard effect. These results show that incentives for firm growth, income, capital, and loan specialization under the SOX and DFA regulatory environments complicate the loan risk management process.
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Pérez, Daniel, Vicente Salas-Fumás, and Jesús Saurina. "Earnings and Capital Management in Alternative Loan Loss Provision Regulatory Regimes." European Accounting Review 17, no. 3 (September 2008): 423–45. http://dx.doi.org/10.1080/09638180802016742.
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Ozili, Peterson K. "Bank loan loss provisions, investor protection and the macroeconomy." International Journal of Emerging Markets 13, no. 1 (January 15, 2018): 45–65. http://dx.doi.org/10.1108/ijoem-12-2016-0327.
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Purpose The purpose of this paper is to investigate the non-discretionary determinants of bank loan loss provisions in Africa after controlling for macroeconomic fluctuation, financial development and investor protection. Design/methodology/approach The author uses static and dynamic regression estimation to test for the determinants of bank loan loss provisions. Findings The author finds that non-performing loans (NPL), loan-to-asset ratio and loan growth are significant non-discretionary drivers of bank provisions in the African region. The author observes that bank provision is a positive function of NPL up to a threshold beyond which bank provisions will no longer increase as NPL increases. Also, bank loan-to-asset ratio is a significant driver of bank provisions when African banks have higher loan-to-asset ratios. The author finds that larger banks in financially developed African countries have fewer loan loss provisions while increase in bank lending leads to fewer bank provisions in countries with strong investor protection. Finally, higher bank lending is associated with higher bank provisions during economic boom. Originality/value This study is the first to assess the determinants of non-discretionary bank provisions in Africa as part of micro-prudential surveillance of banks in the African region.
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Honey, Damian, Tahseen Mohsan Khan, and Malik Umer Ayub. "Factors Influence Banks’ Advancing Approach: Study Of Emerging Economies." Journal of Educational Paradigms 1, no. 2 (December 15, 2019): 64–71. http://dx.doi.org/10.47609/0102032019.
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The study explores the advancing approach of commercial banks of Pakistan and Bahrain influenced by different factors that include loan loss provision, profitability, financial risks, and capital requirement. Hypotheses tested using exploratory analysis and GMM panel regression applied to the data obtained from 26 commercial banks of two countries for the period FY2008 to FY2017. The results reveal a significant connection between advancing approach and loan loss provisions for banks of both countries. Further, the advancing approach establishes a meaningful adverse relationship with profitability and credit risk for banks in Pakistan and with CAR for banks in Bahrain. Overall, the study discovers loan loss provision, profitability, credit risk, and CAR as critical factors having a direct and indirect influence on banks’ advancing approaches, which is an addition to the body of knowledge. Interestingly, it observed that the banks are more inclined towards risky assets such as consumer finance must maintain a higher degree of capital adequacy ratio.
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Beatty, Anne, and Scott Liao. "What Do Analysts' Provision Forecasts Tell Us about Expected Credit Loss Recognition?" Accounting Review 96, no. 1 (May 20, 2020): 1–21. http://dx.doi.org/10.2308/tar-2018-0049.
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ABSTRACT We document potential cross-sectional differences in how expected loss accounting will affect provision timeliness to provide important policy insights and contribute to the literature regarding the estimation of the expected loss model adoption impact and provision timeliness determinants. Our findings that analyst provision forecasts incrementally predict future nonperforming loans (NPLs) and market returns suggest that the incurred loss provision does not incorporate all available future loss information. Higher incremental coefficients on provision forecasts for banks with greater unrecognized future losses and incurred loss constraints suggest CECL could affect cross-sectional provision timeliness differences by removing these constraints. Specifically, the provision forecast and future NPL association increases with banks' unconstrained future loss estimates reflected in loan fair value disclosures and incurred loss constraints indicated by heterogeneous loans individually reviewed for impairment. This association also increases with EPS forecast errors, but decreases with target price and NPL forecast errors.
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Lee, Hyo-Jin, and Joon Hei Cheung. "The Effect of ETR on Non Performing Loan Ratio and Loan Loss Provision : Focusing on Savings Bank." Journal of CEO and Management Studies 23, no. 1 (April 30, 2020): 397–412. http://dx.doi.org/10.37674/ceoms.23.1.21.
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ElBannan, Mona A. "Do consolidation and foreign ownership affect bank risk taking in an emerging economy? An empirical investigation." Managerial Finance 41, no. 9 (September 14, 2015): 874–907. http://dx.doi.org/10.1108/mf-12-2013-0342.
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Purpose – The purpose of this paper is to examine the effect of bank consolidation and foreign ownership on bank risk taking in the Egyptian banking sector. Design/methodology/approach – Following prior studies (e.g. Yeyati and Micco, 2007; Barry et al., 2011), this study uses pooled Ordinary Least Squares regression models under two main analyses to test the relation between concentration and foreign ownership on one hand and bank risk-taking behavior on the other hand, where observations are pooled across banks and years for the 2000-2011 period. The reform plan was launched in 2004 and resulted in various restructuring activities in the banking system. Thus, to control for the effect of implementing the financial sector reform plan on bank insolvency and credit risk, this study includes a reform dummy variable (RFM) for the post-reform period in models testing the association between consolidation, foreign ownership and bank risk. Therefore, this categorical variable identifies whether bank risk is related to the reform activities that have been observed during the post-restructuring period, 2005-2011. Moreover, to accommodate the possibility that effects of bank concentration and foreign ownership on bank risk differ due to the implementation of the reform plan, the author create two interaction terms: one uses the product of the reform dummy variable and concentration measures, while the other uses the product of the reform dummy and foreign ownership variables to capture interactions. These interaction terms and the dummy variable provide ample room to capture the effect of bank concentration and foreign ownership on bank risks during the post-reform period. Findings – This study provides empirical evidence that bank concentration is associated with low insolvency risk and credit risk as measured by loan loss provisions (LLP) in the post-reform period. These results are consistent with the “concentration-stability” view, suggesting that concentration of the banking sector will enhance stability. Moreover, evidence shows that while a higher presence of foreign banks reduces bank credit risk in the post-reform period, it appears to increase insolvency risk. These results are robust to using alternative measures. These findings imply that regulators in emerging countries should support foreign investments in banks to transfer better managerial skills and systems. However, government-owned banks are found to be more prone to insolvency and credit risks; thus, their ownership should not be encouraged. Finally, policy makers should reinforce bank consolidation, be prudent in determining the capital adequacy ratio (CAR) and monitor intensively less profitable, well-capitalized and small-sized banks. Practical implications – Consolidation of the banking sector decreases insolvency risk and credit risk, as measured by LLP in the post-reform period. This study proposes that bank supervisors implement prudent polices in determining the bank CAR, and monitor intensively less profitable, well-capitalized and smaller banks, as they have incentives to increase risk. In addition, regulators should encourage foreign investment in the banking sector and facilitate their operations in Egypt. Social implications – Bank supervisors should intensely monitor banks with high-CARs that exceed mandatory requirements because they may be more likely to engage in more risk-taking activities. Originality/value – It provides empirical evidence from a country-specific, emerging market perspective, in which restructuring events affect the national economy. Egypt, similar to other emerging countries in Africa, pursues an institutionally based (bank-based) system of corporate governance, where banks are the primary sources of finance for firms. Therefore, restructuring banks and other financial institutions and supervising their operations ensure the soundness and stability of these institutions, which represent the nerve of emerging economies. Because emerging countries tend to share common characteristics and economic conditions, and the reform of their financial systems is significant for economic development, the Egyptian banking reform and restructuring program should be of interest to other emerging countries to capitalize on this experiment. While international studies on these relationships are mostly cross-country or focus on US banks, firm-specific studies are scant. Furthermore, the findings of this study should be of interest to Egyptian regulators, bank supervisors and policy makers studying the implications of bank reforms.
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HIEN, NGUYEN THI THU, and PHAM DINH TUAN. "Factors Affecting the Loan Loss Provision in Vietnamese System of Commercial Banks." Journal of Economics Development 222 (October 1, 2014): 89–106. http://dx.doi.org/10.24311/jed/2014.222.06.
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Anandarajan, Asokan, Iftekhar Hasan, and Ana Lozano-Vivas. "Loan loss provision decisions: An empirical analysis of the Spanish depository institutions." Journal of International Accounting, Auditing and Taxation 14, no. 1 (January 2005): 55–77. http://dx.doi.org/10.1016/j.intaccaudtax.2005.01.004.
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