The impact of the 1989 change in bank capital standards on loan loss provisions and loan write-offs

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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The impact of discretionary loan loss provision of sharia financing on financial performance

Banks and Bank Systems ◽

10.21511/bbs.14(4).2019.04 ◽

2019 ◽

Vol 14 (4) ◽

pp. 34-41

Author(s):

Z Zulfikar ◽

Wahyuni Sri

Keyword(s):

Financial Performance ◽

Commercial Banks ◽

Structural Equation ◽

Equation Modeling ◽

Loan Loss ◽

Return On Assets ◽

Operating Income ◽

Loan Loss Provision ◽

Loan Loss Provisions ◽

The Impact

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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Firm Structural Characteristics and Financial Reporting Quality of Listed Deposit Money Banks in Nigeria

International Business Research ◽

10.5539/ibr.v9n1p106 ◽

2015 ◽

Vol 9 (1) ◽

pp. 106 ◽

Cited By ~ 1

Author(s):

Olumide A. Olowokure ◽

Muhammad Tanko ◽

Terzungwe Nyor

Keyword(s):

Financial Reporting ◽

Structural Characteristics ◽

Emerging Market ◽

Secondary Data ◽

Reporting Quality ◽

Financial Reporting Quality ◽

Loan Loss ◽

Loan Loss Provisions ◽

The Impact

<p>The quality of financial report is very crucial as published financial reports remains, for the most part, the only means by which outside shareholders and investors keep themselves informed about the performance of the firm. In the present economic scenario, this concern for financial reporting quality becomes more acute as emerging market economies and more importantly mono economies like Nigeria face greater uncertainties as they combat the challenges of unprecedented fall in oil prices. In addition to this, the suspension of the CEO, Chairman and two other directors of Stambic IBTC bank by the Financial Reporting Council of Nigeria for filling a misleading financial statement for 2013 and 2014 has also shown that the issue of financial reporting quality cannot be overemphasized. Using secondary data from the published reports of thirteen listed deposit money banks in Nigeria for over a period of ten years between 2005 and 2014, this paper seeks to find the determinants of financial reporting quality and reports the findings of the impact of structural characteristics like age, size and level of leverage on financial reporting quality. Using prio studies as a guide, we developed a model for loan loss provisions and generated the residuals, using these residuals know as abnormal loan loss provisions as the dependent variable for the multiple regression analysis, the study did not find any evidence of significant relationship between firm age, size, leverage and financial reporting quality.</p>

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Provisioning, Bank Behavior and Financial Crisis: Evidence from GCC Banks

Review of Middle East Economics and Finance ◽

10.1515/rmeef-2015-0024 ◽

2015 ◽

Vol 11 (3) ◽

Cited By ~ 1

Author(s):

Saibal Ghosh

Keyword(s):

Bank Loan ◽

Capital Regulation ◽

Islamic Banks ◽

Bank Capital ◽

Loan Loss ◽

Minimum Capital ◽

Loan Loss Provisions ◽

Bank Capital Regulation ◽

Bank Behavior ◽

Using Data

AbstractThe debate on bank capital regulation has in recent years devoted specific attention to the role that bank loan loss provisions play as a part of the overall minimum capital regulatory framework. Using data for 1996–2011, we find evidence in favor of both capital management and signaling behavior by GCC banks. Islamic banks appear to engage less in such behavior as compared to their non-Islamic counterparts.

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Determinan Profitabilitas Bank: Suatu Studi pada Bank yang Terdaftar di BEI

TRIKONOMIKA ◽

10.23969/trikonomika.v13i1.485 ◽

2014 ◽

Vol 13 (1) ◽

pp. 62

Author(s):

Jaja Suteja ◽

Gerinata Ginting

Keyword(s):

Stock Exchange ◽

Regression Method ◽

Loan Loss ◽

Market Capitalization ◽

Loan Loss Provisions ◽

Interest Income ◽

Multiple Regression Method ◽

The Impact ◽

Research Period ◽

Interest Expense

This research is aimed at providing empirical evidence of the impact of non interest income, Non Interest Expense, Loan Loss Provisions, Equity, Total Assets, GDP, Market Capitalization on ROA. This research sampled 20 banks listed in Indonesia Stock Exchange during the research period that is 2003 to 2011. Data were analyzed using multiple regression method. Based on the result of analysis, it is concluded that Non Interest Income, Non Interest Expense, Loan Loss Provisions, Equity, Total Assets, GDP, Market Capitalization have significant effect on ROA.

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Three essays on economic consequences of new accounting regulation and bank accounting

10.35662/unine-thesis-2919 ◽

2021 ◽

Author(s):

◽

Albian Albrahimi

Keyword(s):

Risk Taking ◽

Market Discipline ◽

Economic Consequences ◽

Accounting Quality ◽

Loan Loss ◽

Earnings Volatility ◽

Loan Loss Provisions ◽

Hedge Accounting ◽

Ifrs 9 ◽

The Impact

This dissertation comprises three distinct chapters. The first chapter examines whether accounting quality improves for firms voluntarily adopting IFRS by using a single country setting of Swiss firms. The Swiss setting enables isolating the effect of the change from accounting standards from changes in reporting enforcement. I find that voluntary adopters exhibit significant improvement in accounting quality metrics in the post-adoption period. Classifying the adopters in non-serious or serious adopters based on their actual reporting changes around the adoption, I find that the non-serious adopters do not face accounting quality improvements in the post-adoption period. Overall, the evidence points towards the explanation that accounting quality is mainly shaped by reporting incentives. The second chapter examines the new Expected Credit Loss (ECL) model’s impact on the predictability of loan loss provisions (LLP) and potential market discipline consequences. I examine whether the arguably less objective LLP under IFRS 9 obscure market participants’ ability to monitor the banks’ risk-taking incentives. The empirical findings suggest a decrease in the association between loan loss provisions and the incurred loss model determinants in the post-IFRS 9 period, i.e., LLP are based less on objective determinants after IFRS adoption. Furthermore, I find a decrease in the sensitivity of leverage to changes in risk in the post-adoption period of IFRS 9, indicating an attenuated market discipline over banks’ risk-taking. In contrast, I find no changes in the determinants of LLP and market discipline for the benchmark sample of U.S. banks, which were not subject to similar accounting changes during the sample period. The third chapter examines whether banks change the accounting designation of derivatives after ASU 2017-12. I investigate the impact of the new standard on earnings volatility within different groups of derivative users. Using detailed quarterly data on financial derivatives for bank holdings, I find that the level of earnings volatility and the ASU 2017-12 influence the banks’ decisions to use hedge accounting. In assessing the impact within groups of derivative users, I find evidence that banks that designate derivatives for hedge accounting purposes exhibit a lower level of earnings volatility around the adoption of ASU 2017-12 as opposed to banks that elect not to apply hedge accounting. I also find that banks that elect to use hedge accounting for the first time after adopting the standard update exhibit decreased earnings volatility. Overall, the findings confirm the FASB’s initial intention of introducing the accounting standard’s update.

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Earnings management and evolution of the banking regulation

Journal of Accounting in Emerging Economies ◽

10.1108/jaee-12-2011-0057 ◽

2015 ◽

Vol 5 (2) ◽

pp. 150-169 ◽

Cited By ~ 5

Author(s):

Sarra Hamza Elleuch ◽

Nelia Boulila Taktak

Keyword(s):

Earnings Management ◽

Management Practices ◽

Mixed Model ◽

Banking Regulation ◽

Loan Loss ◽

Content Type ◽

Loan Loss Provisions ◽

Qualitative Approaches ◽

The Impact ◽

The Imf

Purpose – The purpose of this paper is to examine the earnings management practices of Tunisian banks after the publication of the first International Monetary Fund (IMF) report (2002) over the period 1998-2007. Design/methodology/approach – The study relies on a mixed model that combines both the quantitative and qualitative approaches. First of all, we use the quantitative method to measure the discretionary loan loss provisions based on the model of Cornett et al. (2009), and then we validate the quantitative findings by using the interview approach. Findings – Since 2005, Tunisian banks have resorted less and less to accounting earnings management through the loan loss provisions, but conversely, real earnings management has been revealed instead by the sale of investment securities and the use of debt collection agencies. Despite the IMF recommendations, Tunisian banks continue to manage their earnings by changing only their strategies. Practical implications – The findings of this study show that the regulation cannot avoid earnings management. Even if the regulation limits the discretion of the manager, the latter finds new alternatives to manipulate the earnings. Originality/value – This is the first study that analyses the impact of the IMF recommendations on earnings management in an emerging economy.

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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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The impact of loan loss provisioning on bank capital requirements

Journal of Financial Stability ◽

10.1016/j.jfs.2018.02.009 ◽

2018 ◽

Vol 36 ◽

pp. 114-129 ◽

Cited By ~ 13

Author(s):

Steffen Krüger ◽

Daniel Rösch ◽

Harald Scheule

Keyword(s):

Capital Requirements ◽

Bank Capital ◽

Loan Loss ◽

The Impact ◽

Bank Capital Requirements

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Risk Assessment and Earning Management in Banking of Indonesia: Corporate Governance Mechanisms

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.2016.4.1(1) ◽

2016 ◽

Vol 4 (1) ◽

pp. 01-07

Author(s):

Trinandari Prasetya Nugrahanti

Keyword(s):

Risk Assessment ◽

Corporate Governance ◽

Earnings Management ◽

Management Practices ◽

Banking Sector ◽

Loan Loss ◽

Loan Loss Provisions ◽

Corporate Governance Mechanisms ◽

The Impact

Objective - The aim of this study to investigate the impact of risk assessment using the risk inherent and quality implementation of quality risk management in the operational activities of banking operations to earnings management practices through loss loan provisions and examine whether the mechanism of corporate government bank covering structure of corporate governance and quality of corporate governance can reduce the impact increase in earnings management in Banking sector of Indonesian. Methodology/Technique - We used data pooled from 2012 through 2014. By exploring the purposive sampling method, the 36 banking listed on the Stock Exchange Indonesian were selected as a sample of this study. A panel data multivariate regression methodology is used. Findings - The result of this study that (1) risk assessment strengthens the decrease in the earning management implementation after the adoption of IFRS in IAS 39; (2) corporate governance mechanisms can weaken the decrease in the earnings management practices through loan loss provisions. The final conclusions are IFRS in IAS No. 39 and Basel II Accord generally evidence to improve in bank's financial report quality. Novelty - This study could not find an empirical evidence on the impact of corporate government mechanisms covering structure of corporate governance and quality of corporate governance can reduce the increase in earnings management in banking sector of Indonesian Type of Paper - Empirical Keywords: Risk Assessment, Corporate Governance, Earnings Management, Loan Loss Provisions.

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