Bank Loan-Loss Provisioning, Methodology and Application

Dermine, Jean; Carvalho, Cristina Neto de

doi:10.2139/ssrn.533104

Cited by 1 publication

(2 citation statements)

References 33 publications

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“…Besides an adequate and reasonable level of LLPs, Dermine and Carvalho (2006) explain that “any empirical study of credit risk and loan loss provisioning practices raises two measurement issues; the criteria to define the time of default event; and the method to measure recovery” (p. 10). The authors content that:…”

Section: Literature Reviewmentioning

confidence: 99%

“…Dermine and Carvalho (2006) described a second category of literature on LLPs derived from studies of Musumeci and Sinkey (1990) and Elliott et al (1991) on the announcement of unexpected LLPs. In their paper, Musumeci and Sinkey accounted for all supporting evidence to imply that managers’ choice to report huge increases in LLPs may be used by outsiders as a signal that the bank is strong enough to absorb future potential losses.…”

Section: Literature Reviewmentioning

confidence: 99%

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Determinants of loan loss provisions of commercial banks in Malaysia

Isa

Choong

Fie

et al. 2018

JFRA

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Purpose This paper aims to derive determinants of loan loss provisions (LLPs) of commercial banks in Malaysia. Design/methodology/approach A single-stage panel data analysis multiple regression model that contains a mixture of quantitative and qualitative elements is used. The LLPs is a dependent variable or regressor, and non-performing loan (NPL), interest income, net profit, loans and advances and gross domestic product (GDP) are the independent variables or regressor/explanatory variables. The moderating variable is “credit risk management” (CRM) and the intervening variable is “relevance and faithful representation”. Findings This paper suggests in LLPs, NPLs, interest income, loans and advances, net profit and GDP, as well as the moderating effect of CRM and the intervening effect of relevance and faithful representation, are determinants of the LLPs. The moderating variable CRM strengthens the relationship between the independent variables and the dependent variable. The intervening variable “relevance and faithful representation” brings about a more accurate reporting on the levels of the LLPs. Practical implications The association of the factors is investigated further to detect possible effect of multicollinearity and research to better understand how banks manage their risk as the current investigation is limited to banks in Malaysia. Social implications Loan loss provisioning issues of commercial banks in Malaysia are challenges for both regulators and the banking industry owing to the implementation of several new measures, the convergence with internationally accepted accounting standards and differences in loan grading and applications of different loan loss provisioning standards. Because of these challenges, Bank Negara Malaysia (the Central Bank of Malaysia) has tightened its supervision of commercial banks to ensure that banks are sufficiently and adequately provisioned. The banking sector plays a significant role, and it is important that it is resilient in the face of potential sources of systemic risk. And, like in other major ASEAN economies, the Malaysian’s financial system remains largely bank-dominated. Originality/value This study discovers whether Malaysian banks are sufficiently provisioned for the regional financial integration under the ASEAN Capital Markets Forum (ACMF) by the end of 2015, where several initiates have been initiated, including the harmonization of standards to encourage greater intra-regional investment flows and transactions and continued provisions of the much needed funds by the region’s private sectors.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%