scholarly journals Loan Loss Provisioning, Income Smoothing, Signaling, Capital Management and Procyclicality: Does IFRS Matter? Empirical Evidence from Nigeria

2014 ◽  
Author(s):  
Peterson K Ozili
Keyword(s):  
Empirical Evidence ◽  
Income Smoothing ◽  
Capital Management ◽  
Loan Loss

scholarly journals Loan Loss Provisions, Income Smooth, Signaling, Capital Management and Pro-Cyclicality. Empirical Evidence from Mozambique’s Commercial Banks

2017 ◽  
Vol 9 (11) ◽  
pp. 48 ◽  
Author(s):  
Tito Tomas Siueia ◽  
Wang Jianling
Keyword(s):  
Empirical Evidence ◽  
Public Debt ◽  
Commercial Banks ◽  
Debt Crisis ◽  
Bank Lending ◽  
Income Smoothing ◽  
Capital Management ◽  
Loan Loss ◽  
Management Activity ◽  
Loan Loss Provisions

The aim of this study is to provide the first empirical evidence of income smoothing, capital management, signaling, and pro-cyclical behavior through loan loss provisions (LLP) for Mozambican commercial Banks, an example of the under-developed country. A second goal is to understand the bank lending behavior during the Mozambique’s hidden public debt crisis. The sample consists of all commercial banks observed during 2010-2016. We provide strong evidence that Mozambican commercial banks are pro-cyclical through LLP and these banks engage in income smoothing activity. However, for capital management activity and signaling behavior, we provide insignificant evidence to support these hypotheses among Mozambican commercial banks via LLP. Also, the result indicates that Mozambique’s hidden public debt crisis, the commercial banks put aside more provisions.

scholarly journals Some Empirical Evidence of Loan Loss Provisions for Albanian Banks

2016 ◽  
Vol 5 (2) ◽  
pp. 157-173 ◽  
Author(s):  
Elona Dushku
Keyword(s):  
Empirical Evidence ◽  
Income Smoothing ◽  
Economic Fluctuations ◽  
Capital Management ◽  
Loan Loss ◽  
Global Crisis ◽  
Loan Loss Provisions ◽  
Main Determinants ◽  
Provisioning Behaviour

Abstract In this paper we used a panel of Albanian banks for the period 2004-2014 to examine the main determinants of loan loss provisions. In addition, we tested how the latest crisis has affected provisioning behaviour of the banks. We find that loan loss provisions of banks are driven by non-discretionary components and economic fluctuations. Furthermore, we find a positive and significant result between earnings before interest, taxes and provisions and loan loss provisions, thus confirming the income smoothing hypothesis. Our estimated results do not support the capital management and signalling hypotheses. We also find that the global crisis has contributed significantly to the procyclicality of loan loss provisioning in Albania and banks continued to do income smoothing during the crisis.

scholarly journals Does banking oversight make financial statements more reliable? An analysis through countries which are part of the Single Supervisory Mechanism (SSM)

2019 ◽  
Vol 16 (3) ◽  
pp. 36-51
Author(s):  
Giacomo Ceccobelli ◽  
Alessandro Giosi
Keyword(s):  
Earnings Management ◽  
Banking Industry ◽  
Financial Statements ◽  
Income Smoothing ◽  
Capital Management ◽  
Loan Loss ◽  
Single Supervisory Mechanism ◽  
Loan Loss Provisions ◽  
Regulation And Supervision ◽  
Bank Regulation And Supervision

The purpose of this research is to investigate earnings management purposes in the banking industry via loan loss provisions using a sample of 156 banks from 19 European countries under the Single Supervisory Mechanism (SSM) over the period 2006-2016. Using regression analysis, banks are tested for income smoothing, capital management, and signaling purposes. This study contributes to the literature exploring the relationship between accounting quality and earnings management objectives by analyzing which one of the latter is the more important determinant. The hypotheses of income smoothing and signaling are strongly approved since loan loss provisions consist as a tool for smoothing the amount of net profit and to convey private information to the market; on the contrary, the capital management purpose is not supported. Additionally, the analysis finds that non-discretionary components of loan loss provisions (essentially non-performing loans) have played an important role, especially during the financial crisis. Furthermore, the research is aimed at investigating the peculiar regulatory and supervisory environment in the banking industry on the basis of a set of indexes included in the “Bank Regulation and Supervision Survey”, carried out by the World Bank. Unlike previous literature, this study takes into account the latest release of the survey, emphasizes the role of an on-site inspection as the main supervisory tool and extends the analysis of the interaction between bank regulation and supervision and earnings management. The results demonstrate that such controls can influence the behaviour of bank managers in terms of income smoothing and signaling practices. Therefore they can be considered as effective instruments for reducing banks’ management accounting discretion, making financial statements more reliable.

Regulatory changes and loan loss provisions management by Chinese banks

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Li Chen ◽  
David Emanuel ◽  
Lina Z. Li ◽  
Mu Yang
Keyword(s):  
Income Smoothing ◽  
Basel Iii ◽  
Capital Management ◽  
Loan Loss ◽  
Content Type ◽  
Loan Loss Provisions ◽  
Regulatory Changes ◽  
Tier 1 ◽  
Chinese Banks ◽  
Tier 1 Capital

PurposeThe authors examine whether Chinese banks use loan loss provisions (LLPs) for capital management, income smoothing and signaling purposes, and assess the effect of the recent regulatory changes following the implementation of Chinese Basel III on such behavior.Design/methodology/approachThe authors use a unique set of hand-collected data on bank capital combined with financial data downloaded from the China Stock Market and Accounting Research (CSMAR) database. Multivariate regression models are used to test our hypotheses.FindingsThe authors find that while there is no evidence to suggest capital management practice before the Chinese Basel III, the implementation of the new regulations induced listed banks to manage tier-1 capital via LLPs. The authors also find strong support that Chinese banks engage in income smoothing via LLPs management, and there is no change in such tendency following the issuance of Chinese Basel III. Lastly, the authors do not find support for the signaling behavior by Chinese banks using LLPs.Practical implicationsThe authors’ evidence suggests that elevated tier-1 capital and provisioning requirements may induce capital management by banks, which indicates a potential unintended effect brought forth by the new Basel regulations.Originality/valueTo the best of authors’ knowledge, this study is the first to examine Chinese banks' behavior relating to LLPs in terms of capital management, income smoothing and signaling. In particular, the authors use a sample containing a large number of Chinese commercial banks – previously a major data issue in other studies.

Determinants of banks’ provisioning policies during the crisis

2014 ◽  
Vol 40 (10) ◽  
pp. 987-1006 ◽  
Author(s):  
Domenico Curcio ◽  
Douglas Dyer ◽  
Angela Gallo ◽  
Igor Gianfrancesco
Keyword(s):  
Financial Markets ◽  
Banking Sector ◽  
Global Financial Crisis ◽  
Balance Sheet ◽  
Capital Requirements ◽  
Income Smoothing ◽  
Capital Management ◽  
Loan Loss ◽  
Content Type ◽  
Chinese Banking

Purpose – The purpose of this paper is to investigate the discretionary use of loan loss provisions in the Chinese banking sector during the global financial crisis. The objective of this paper is twofold: to add new evidence to the scant literature dealing with a peculiar banking sector, such as the Chinese one, and to shed more light on banks’ provisioning behaviour during stressed financial markets conditions. Design/methodology/approach – Using bank-level balance sheet and financial statements data, the authors test for income smoothing and capital management hypotheses, and detect differences in provisioning decisions of listed banks and unlisted financial intermediaries during turbulent financial markets conditions. Findings – The authors find support for the income smoothing hypothesis, but not for the capital management one. Chinese listed banks appear to be less risky and less involved in income smoothing to shift their risk, when compared to unlisted credit institutions. Social implications – The results obtained from this paper help to understand the functioning of bank provisioning regime in the Chinese banking system and how provisioning mechanisms can address the issues associated with the pro-cyclicality of bank capital requirements. Originality/value – Though referred to a particular banking sector, such as the Chinese one, the results of this paper can provide a tremendous incentive to those national and international authorities that are bound to promote forward-looking provisioning practices. These practices would allow banks to build a buffer of reserves to face the downward pressure on earnings and capital associated with periods of worsening credit quality.

Hidden “holes” in the capital of banks and the supply of credit to the real sector of economy

2018 ◽  
pp. 49-68 ◽  
Author(s):  
M. E. Mamonov
Keyword(s):  
Credit Risk ◽  
The Other ◽  
Real Sector ◽  
Capital Management ◽  
Loan Loss ◽  
Short Term ◽  
The Real ◽  
Ex Post ◽  
The One

Our analysis documents that the existence of hidden “holes” in the capital of not yet failed banks - while creating intertemporal pressure on the actual level of capital - leads to changing of maturity of loans supplied rather than to contracting of their volume. Long-term loans decrease, whereas short-term loans rise - and, what is most remarkably, by approximately the same amounts. Standardly, the higher the maturity of loans the higher the credit risk and, thus, the more loan loss reserves (LLP) banks are forced to create, increasing the pressure on capital. Banks that already hide “holes” in the capital, but have not yet faced with license withdrawal, must possess strong incentives to shorten the maturity of supplied loans. On the one hand, it raises the turnovers of LLP and facilitates the flexibility of capital management; on the other hand, it allows increasing the speed of shifting of attracted deposits to loans to related parties in domestic or foreign jurisdictions. This enlarges the potential size of ex post revealed “hole” in the capital and, therefore, allows us to assume that not every loan might be viewed as a good for the economy: excessive short-term and insufficient long-term loans can produce the source for future losses.

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