Financial crisis and international supervision: New evidence on the discretionary use of loan loss provisions at Euro Area commercial banks

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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Loan Loss Provisions and Earnings Management in Malaysian Banking Industry

GATR Global Journal of Business Social Sciences Review - GATR Global Journal of Business and Social Science Review (GJBSSR) Vol.7(1) Jan-Mar 2019 ◽

10.35609/gjbssr.2013.1.1(10) ◽

2013 ◽

Vol 1 (1) ◽

pp. 93-104

Author(s):

Hasni Abdullah ◽

Imbarine Bujang ◽

Ismail Ahmad

Keyword(s):

Earnings Management ◽

Commercial Banks ◽

Global Financial Crisis ◽

Banking Industry ◽

Least Square ◽

Capital Management ◽

Loan Loss ◽

Macroeconomic Factors ◽

Ordinary Least Square ◽

Loan Loss Provisions

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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Audit Committee and Discretionary Loan Loss Provisions in Tunisian Commercial Banks

International Journal of Business and Management ◽

10.5539/ijbm.v13n3p169 ◽

2018 ◽

Vol 13 (3) ◽

pp. 169

Author(s):

Amina Zgarni ◽

Hassouna Fadhila ◽

Moez El Gaied

Keyword(s):

Earnings Management ◽

Commercial Banks ◽

Regression Models ◽

Audit Committee ◽

Standard Errors ◽

Loan Loss ◽

Positive Effects ◽

Loan Loss Provisions ◽

Effective Role

The purpose of this paper is to study the effect of the audit committee (presence, expertise, independence, size and activity) on earnings management of banks. We selected a sample of ten Tunisian commercial banks examined over the 2001 to 2014 period. The regression models are estimated using the “Panel Corrected Standard Errors” method of Beck and Katz (1995). Our empirical results highlight the effective role of the audit committee's expertise in mitigating discretionary practices. However, the number of meetings, which is less than the standard required by regulatory authorities, does not have a significant disciplinary effect on discretionary loan loss provisions. Results also report that Audit committee’s independence and size have positive effects on discretionary loan loss provisions in our sample.

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Factors influencing bank profitability in a developing economy- Panel evidence from Bangladesh

International Journal of Asian Business and Information Management ◽

10.4018/ijabim.20210701oa25 ◽

2021 ◽

Vol 12 (3) ◽

pp. 0-0

Keyword(s):

Commercial Banks ◽

Fixed Effect Model ◽

Loan Loss ◽

Data Set ◽

Bank Profitability ◽

Loan Loss Provisions ◽

Efficient Management ◽

Income Ratio ◽

Internal And External Factors ◽

The Cost

The purpose of this paper is to investigate the relationship between bank-specific characteristics and profitability of commercial banks operating in Bangladesh to find the role of both internal and external factors in achieving high profitability. The Fixed Effect Model is built on a balanced panel data set comprising 135 observations of 27 commercial banks over the period 2014-2018. Regression findings reveal that size and capital ratio are significant bank-specific determinants of bank profitability in Bangladesh where the effect of loans ratio is statistically insignificant. Findings also suggest that banks with higher deposits tend to be more profitable and small banks have efficient management. The cost to income ratio and loan loss provisions are statistically insignificant on the performance of banks. On the other hand, macroeconomic variables such as GDP growth have a significant impact on profitability whereas the effects of inflation on profitability are statistically insignificant in some cases.

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Efficiency of Domestic and Foreign Banks in Thailand Since the Asian Financial Crisis

International Journal of Banking and Finance - Vol. 15, Number 2, 2020 ◽

10.32890/ijbf2008.5.2.8371 ◽

2008 ◽

Author(s):

Tosporn Chotigeat

Keyword(s):

Financial Crisis ◽

Financial Services ◽

Time Series Data ◽

Financial Time Series ◽

Full Range ◽

National Level ◽

Foreign Banks ◽

Series Data ◽

Loan Loss ◽

Loan Loss Provisions

During the 1990’s, two simultaneous phenomena had converged, greatly changing the financial services industry in Thailand. At the national level, Thai banks had to restructure in response to the financial reforms implemented as a result of the financial crisis of 1997. At the global level, large multinational banks were taking advantage of worldwide, financial deregulation and rapid technological advances by offering a full range of financial products and services in order to fiercely compete, both domestically and globally. Using quarterly financial time-series data of domestic and foreign banks in Thailand from 1997 to 2003, this paper seeks to analyze the cause of their efficiency. The findings indicate that both the efficiency ratio and loan loss provisions influenced the negative performance of domestic banks, while only loan loss provisions had negatively influenced the performance of foreign banks.

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SEC Supervisory Activity in the Financial Industry

Journal of Accounting Auditing & Finance ◽

10.1177/0148558x18772417 ◽

2018 ◽

Vol 35 (3) ◽

pp. 607-636 ◽

Cited By ~ 2

Author(s):

Angela Pettinicchio

Keyword(s):

Financial Crisis ◽

Financial Institutions ◽

Historical Data ◽

Financial Industry ◽

Loan Loss ◽

Crisis Period ◽

Research Division ◽

Loan Loss Provisions ◽

Asymmetric Attitude ◽

The Way

This study documents a higher incidence of SEC Comment Letters among financial institutions characterized by abnormal levels of loan loss provisions (LLPs). In particular, results show that this effect is stronger for banks overestimating LLPs, suggesting an asymmetric attitude of the SEC Research Division toward overestimations compared with LLPs underestimations, especially in the pre-financial crisis period. Finally, the study demonstrates that after receiving a Comment Letter by the SEC, financial institutions change the way they account for LLPs by basing their computation more on historical data, thereby reducing the level of discretion embedded in their calculation.

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Discretionary provisioning practices among Western European banks

Journal of Financial Economic Policy ◽

10.1108/jfep-07-2016-0049 ◽

2017 ◽

Vol 9 (1) ◽

pp. 109-118 ◽

Cited By ~ 11

Author(s):

Peterson K. Ozili

Keyword(s):

Financial Crisis ◽

Credit Risk ◽

Income Smoothing ◽

Least Square ◽

Loan Loss ◽

Content Type ◽

Crisis Period ◽

Loan Loss Provisions ◽

European Banks ◽

Western European

Purpose The purpose of the study is to investigate whether discretionary ‘loan loss provisioning’ by Western European banks is driven by income smoothing or credit risk considerations. Design/methodology/approach To test the income smoothing hypothesis, the study uses ordinary least square regression to examine the relation between loan loss provisions and earnings before tax and loan loss provisions in the post-financial crisis period. Findings The authors find evidence that discretionary provisioning by Western European banks is driven by income smoothing incentives in the post-financial crisis period, particularly, among listed banks. Also, it is observed that discretionary provisioning is significantly influenced by credit risk factors, mainly, non-performing loans and loan growth. Also, it is found that discretionary provisioning by Western European banks is procyclical with fluctuations in the economic cycle. Overall, the implication of the findings is that discretionary provisioning among Western European banks is driven by both income smoothing and credit risk considerations. Originality/value This study focus on banks in Western Europe in contrast to prior European studies.

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The Impact of Earnings variability and Regulatory Measures on Income Smoothing: Evidence from Panel Regression

Journal of Central Banking Theory and Practice ◽

10.2478/jcbtp-2021-0009 ◽

2021 ◽

Vol 10 (1) ◽

pp. 183-201

Author(s):

Amina Malik ◽

Haroon Aziz ◽

Buerhan Saiti ◽

Shahab Ud Din

Keyword(s):

Commercial Banks ◽

Stock Exchange ◽

Reporting Quality ◽

Income Smoothing ◽

Capital Adequacy ◽

Panel Regression ◽

Loan Loss ◽

Loan Loss Provisions ◽

Regulatory Measures ◽

The Impact

Abstract This study investigates the impact of variability in earnings, stringent regulatory measures and the trend of extending loans while keeping in view deposit ratio on income smoothening practices for a sample of 20 commercial banks listed on the Pakistan Stock Exchange (PSX) from the year 2010 to 2017. The likelihood of smoothing activities is measured through its widely used proxy, i.e. loan loss provisions (LLPs). Moreover, earnings before tax and provisions (EBTP) and loan to deposit ratio (LD) have been incorporated to determine the impact of earnings and loans to deposit ratio on income smoothening. We find that commercial banks are less likely to manage earnings through smoothening practices, which shows that commercial banks adhere to regulatory restrictions. This is further supported by the fact that income smoothing activities decrease as a result of the increase in capital adequacy ratios after the imposition of stringent rules, which exert greater regulatory pressure on banks, whereas the pace of income smoothing increases as a result of an increase in loans to deposit ratio, which reveals that banks take credit risk but manage within the ambit of regulatory restrictions. Based on the findings, we argue that the imposition of regulatory restrictions through the State Bank of Pakistan (SBP) has not only discouraged income smoothening through loan loss provisions but also enhances reporting quality. The results of this study provide useful insights for investors, creditors and stakeholders.

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