Bank loan loss provision decisions: Empirical analysis of Taiwanese banks

Abstract

By adopting the stochastic frontier model, this study follows Anandarajan, Hasan, and Lozano-Vivas (2005) and examines the effi ciency frontier of the Loan Loss Provision (LLP) model in the Taiwanese banking industry during the period 1997 -2004. The determinants of the ineffi ciency LLP are also analyzed. The main results are as follows. (i) The overall effi ciency LLP index was 0.3282, indicating 67.18 per cent ineffi ciency of LLP decision making, similar to one major fi nding of the study by Anandarajan et al (2005), which suggests that ineffi ciency does exist for the LLP decision making. (ii) The LLP estimator is signifi cantly and positively correlated with default loan loss. (iii) Large fi rms are generally subject to an especially close scrutiny by fi nancial analysts and are thus highly motivated to maintain their credibility. In addition, they are more fi nancially transparent relative to small fi rms and are more effi cient in LLP decision making. (iv) Banks with higher non-interest expenses are inclined to manage LLP ineffi ciently.

Learning climate and customer-oriented behaviors: the mediation of customer knowledge

“…Our study was conducted in Taiwan's retail banking sector characterized by overbanking. Compared to other countries, Taiwan has a relatively high number of banks in terms of population size (Yeh, 2010); as a result, bank management in Taiwan pays more attention to customer-orientation not only for the expansion and maximization of short-term profits, but also for the maintenance of long-term relationships with customers. As we do not yet have a body of research for many of the concepts addressed in this study, it would be helpful to conduct additional studies at the country level to assess generalizability.…”

Board Structure and Financial Performance of Manufacturing Companies in Nigeria

“…2008) also demonstrated a significant relation between smaller boards and better firm performance (before the passage of antitakeover laws). Similarly, several other studies have provided evidences of the negative effect of board size on performance (Barnhart and Rosenstein, 1998;Hermalin and Weisbach, 2003;Bennedsen et al, 2004;Bonn et al, 2004 (for Japanese firms only); Mak and Kusnadi, 2005;Guest, 2009;Ranti and Sameul, 2012).…”

Non-Performing Loans’ Impacts on the Banking Industries’ Loan Loss Provisions

“…It is necessary to establish an allowance for impairment loss to maintain a bank in a stable condition. This statement is reinforced by research conducted by Yeh (2010), which states that the capital adequacy ratio has a positive effect on the loan loss provision. Based on this description, the following hypothesis H4 is postulated:…”

“…and Vatansever and Hepşen (2013) which showed the value of the capital adequacy ratio has a positive influence on the value of Non-Performing Loans. This statement is reinforced by research conducted by Yeh (2010) which stated that the capital adequacy ratio has a positive effect on the loan loss provision. Based on their studies, the research hypothesis H9 in this study can be postulated as follows:…”

“…Provision Yeh (2010) revealed that the capital adequacy ratio has a positive effect on loan loss provision. In Indonesia, banking and financial reporting are converted into Rupiah currency if the original currency is a foreign currency.…”