scholarly journals Improving Loan Loss Provisioning Framework as a Driver of Economic Growth

2020 ◽  
Vol 14 (2) ◽  
pp. 72-82
Author(s):  
Svetlana Stepanova ◽  
Viktoria Karakchieva
Keyword(s):  
Economic Growth ◽  
Risk Assessment ◽  
Credit Risk ◽  
Financial Statements ◽  
Assessment Method ◽  
Capital Adequacy ◽  
Loan Loss ◽  
Credit Risk Assessment ◽  
Loan Loss Provisions ◽  
Credit Institutions

Various aspects of credit risk have been studied by many researchers. Scientists and practitioners consider different credit risk assessment methods depending on its application, e.g. to determine capital adequacy, to make loss loan provisions, or to estimate its influence on the interest rate. At the same time, there are almost no studies that consider the relationship between loan loss provisioning framework and loan decisions. The study seeks to 1) understand how the practices and procedures of loan loss provisioning impact total gross loans of Russian banks, and 2) identify constraints for insufficient levels of lending and factors that can foster lending.With the use of an econometric model we estimate a quantitative effect of credit portfolio on the growth of loan loss provisions. We base our model on data derived from financial statements of 400 Russian credit institutions between 2014 and 2019. In addition to our empirical model, we analyze statistical data on the development of the Russian banking system and compare the loan loss provisions in Russian and foreign financial organizations. The estimates are based on Russian official statistics and financial statements of banks within and outside Russia. The study reveals that the existing credit risk assessment method that rests on the regulations provided by the Bank of Russia is responsible for excessive loan loss provisions accumulated by Russian banks. This, in turn, affects the volumes of bank loans.In our research we have arrived at the conclusion that the existing loan loss provisioning is excessive. Current loan loss provisions do not correspond to real lending losses. They negatively affect the financial results of credit institutions, resulting in ungrounded refusals to lend, which in turn limits economic growth. These results support the rationale for reinventing the existing framework of loan loss provisioning.

Credit risk assessment using purchase order information

2018 ◽  
Vol 05 (04) ◽  
pp. 1850041
Author(s):  
Suguru Yamanaka
Keyword(s):  
Risk Assessment ◽  
Credit Risk ◽  
Financial Institutions ◽  
High Frequency ◽  
Risk Model ◽  
Financial Statements ◽  
Order Information ◽  
Purchase Order ◽  
Credit Risk Assessment ◽  
Business Conditions

This paper proposes advanced credit risk assessment and lending operations using purchase order information from borrower firms. Purchase order information from a borrower firm is useful for financial institutions to evaluate the actual business conditions of the firm. This paper shows the application of purchase order information to lending operations and credit risk assessment, and reveals its effectiveness. First, we propose a “purchase order based” credit risk model for real-time credit risk monitoring of firms. Financial institutions can monitor the actual business conditions of borrower firms by evaluating the firm’s asset value using purchase order information. A combination of traditional firm monitoring using financial statements and high-frequency monitoring using purchase order information enables financial institutions to assess the business conditions of borrower firms more precisely and efficiently. Then, with high-frequency data, financial institutions can give borrower firms appropriate support if necessary on a timely basis. Second, we illustrate purchase order financing, which is the lending method backed by purchase order information from borrowers. With purchase order financing, firms that consistently receive purchase orders from credit-worthy firms can borrow money under more favorable lending terms than the usual lending terms based on the financial statements of the borrower firm.

scholarly journals The Relationship Between Credit Risk Management Practices And Profitability In Malaysian Commercial Bank`S

2019 ◽  
Vol 8 (5C) ◽  
pp. 53-59
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Management Practices ◽  
Secondary Data ◽  
Capital Adequacy ◽  
Credit Risk Management ◽  
Loan Loss ◽  
Commercial Activity ◽  
Loan Loss Provision ◽  
Loan Loss Provisions

This research scope looks into credit risk management and its effect on a specific group of banks with intensive commercial activity within Malaysia. Yearly reports from 8 different banks that rely on secondary data gathered from the span of 3 years (2015-2017), form the essence of this research. Return on assets (ROA) was primarily used in this research to measure profitability. Also, two credit risk measuring methods were used, loan loss provisions ratio (LLPR) and ratio of capital adequacy (CAR). From the results we deduced that commercial bank's profitability related positively to capital adequacy ratio and loan loss provision ratio. Therefore, the research calls upon the need of new management structure that optimally keep credit risk in check and boost banks profitability.

scholarly journals Factors Influence Banks’ Advancing Approach: Study Of Emerging Economies

2019 ◽  
Vol 1 (2) ◽  
pp. 64-71
Author(s):  
Damian Honey ◽  
◽  
Tahseen Mohsan Khan ◽  
Malik Umer Ayub ◽  
Keyword(s):  
Credit Risk ◽  
Commercial Banks ◽  
The Body ◽  
Capital Adequacy ◽  
Financial Risks ◽  
Loan Loss ◽  
Risky Assets ◽  
Loan Loss Provision ◽  
Loan Loss Provisions ◽  
Body Of Knowledge

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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