Income Smoothing via Loan Loss Provision in Credit Cooperative Banks

2017 ◽  
pp. 33-54
Author(s):  
Stefano Azzali ◽  
Luca Fornaciari ◽  
Tatiana Mazza
Keyword(s):  
Financial Reporting ◽  
Group Structure ◽  
Income Smoothing ◽  
Least Square ◽  
Net Income ◽  
Loan Loss ◽  
Loan Loss Provision ◽  
Italian Law ◽  
Cooperative Banks ◽  
Using Data

This research investigates whether income smoothing via loan loss provision is lower for Credit Cooperative Banks than for non-Credit Cooperative Banks. Using data collected from the financial reporting of a sample of private banks, and Ordinary Least Square models based on net income or its variation, as used by previous literature, we find that income smoothing through loan loss provision is lower in Credit Cooperative Banks than in banks with different ownership structures. Results remain the same using several robustness tests (decomposition of loans, quality of loans, change in economic growth, cluster and fixed effect, effect of financial crisis). Mutual ownership, smaller size, and the local boundaries that characterize Credit Cooperative Banks may reduce the need for managers to manipulate earnings. Our findings give a positive evaluation of the recent Italian Law No. 18/2016 which reforms Credit Cooperative Banks, and imply that benefits of Credit Cooperative Banks ownership structure may derive from the group structure which gives a higher level of stability and solidity.

scholarly journals Bank earnings management using loan loss provisions: comparing the UK, France, South Africa and Egypt

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Peterson K. Ozili
Keyword(s):  
South Africa ◽  
Financial Crisis ◽  
Earnings Management ◽  
Financial Reporting ◽  
Global Financial Crisis ◽  
Income Smoothing ◽  
Loan Loss ◽  
Content Type ◽  
Loan Loss Provision ◽  
The Uk

PurposeThis paper aims to investigate bank earnings management using loan loss provision. The paper examines income smoothing, which is a type of earnings management. It compares the income smoothing behaviour of banks in the UK, France, South Africa and Egypt.Design/methodology/approachThe study uses the panel fixed effect regression methodology to analyse bank income smoothing.FindingsThe findings show that bank income smoothing is present in the UK and Egypt and absent in France and South Africa. Banks in Egypt used LLPs to smooth income before the global financial crisis. Meanwhile, bank income smoothing is pronounced in France during and after the financial crisis but was absent in the pre-crisis period. Also, bank income smoothing is reduced in countries that (1) have strict banking supervision, (2) adopt common law particularly the United Kingdom, and by countries that adopt civil law, particularly France and Egypt. Bank earnings management is greater in countries that (3) adopt a mixed legal system, particularly South Africa, and in countries that adopt International Financial Reporting Standards accounting standards.Research limitations/implicationsThe implication of the findings is that country differences may affect banks' incentive to smooth income using loan loss provision.Originality/valueThe novelty of this paper is that it explicitly analyses specific countries that have different supervisory regimes, different structure and accounting rules.

scholarly journals KONVERSI BANK KONVENSIONAL MENJADI BANK SYARIAH DI INDONESIA

2020 ◽  
Vol 1 (1) ◽  
pp. 37-57
Author(s):  
Syamsul Idul Adha ◽  
Hafas Furqani ◽  
Muhammad Adnan
Keyword(s):  
Moral Hazard ◽  
Adverse Selection ◽  
Least Square ◽  
Loan Loss ◽  
Ordinary Least Square ◽  
Loan Loss Provision ◽  
External Auditor ◽  
Auditor Reporting

Konversi bank konvensional menjadi bank syariah di Indonesia merupakan salah satu mekanisme pembentukan bank syariah yang ditandai dengan perubahan secara legal sistem bank konvensional menjadi sistem bank syariah. Penerapan kebijakan konversi menimbulkan permasalahan model mekanisme tata kelola perusahaan yang kurang efektif dalam menjalankan pengawasan terhadap kepatuhan syariah bank, peningkatan risiko adverse selection dan moral hazard pada model pendanaan muḍarabah dan musyarakah, divergensi model bisnis bank syariah yang disertai tingkat efisiensi dan stabilitas aset yang rendah, dan tingkat kualifikasi sumber daya manusia perbankan syariah yang rendah. Penelitian ini bertujuan untuk menganalisis dampak konversi bank konvensional menjadi bank syariah di Indonesia terhadap tata kelola perusahaan, operasional bank, struktur dan kinerja keuangan, dan sumber daya manusia. Penelitian ini merupakan jenis penelitian peristiwa dalam konteks konversi bank konvensional menjadi bank syariah di Indonesia. Data penelitian ini merupakan data panel. Sumber data penelitian berasal dari laporan keuangan yang dipublikasi. Sampel penelitian terdiri atas 7 bank syariah yang dibentuk melalui kebijakan konversi. Alat analisis terdiri dari regresi OLS (Ordinary Least Square) dan Regresi Kuantil. Hasil penelitian menunjukkan bahwa konversi bank konvensional menjadi bank syariah di Indonesia tidak berpengaruh terhadap Tata Kelola Perusahaan, Operasional Bank, Struktur dan Kinerja Keuangan, dan Sumber Daya Manusia. Konversi bank konvensional menjadi bank syariah di Indonesia berpengaruh terhadap indikator Lag Laporan Auditor Eksternal (External Auditor Reporting Lag) sebesar -30,441 dengan nilai R2 sebesar 0,644 yang menunjukkan bahwa model analisis penelitian dapat mengestimasi perubahan Lag Laporan Auditor Eksternal (External Auditor Reporting Lag) sebesar 64,4% dan sisanya 35,5% dijelaskan oleh variabel lain di luar model analisis penelitian. Konversi bank konvensional menjadi bank syariah di Indonesia berpengaruh terhadap indikator Cadangan Kerugian Penurunan Nilai (Loan Loss Provision) sebesar -0,008 dengan nilai R2 sebesar 0,482 yang menunjukkan bahwa model analisis penelitian dapat mengestimasi perubahan Cadangan Kerugian Penurunan Nilai (Loan Loss Provision) sebesar 48,2% dan sisanya 51,8% dijelaskan oleh variabel lain di luar model analisis penelitian.

Evaluating Loan Loss Provisioning for Non-Performing Loans and Its Impact on the Profitability of Commercial Banks in Bangladesh

2018 ◽  
Vol 2 (2) ◽  
pp. 33-41
Author(s):  
Fakir Tajul Islam
Keyword(s):  
Commercial Banks ◽  
Statistical Significance ◽  
Least Square ◽  
Business Success ◽  
Optimum Level ◽  
Loan Loss ◽  
Independent Variables ◽  
Loan Loss Provision ◽  
Interest Income ◽  
Dependent Variables

Through the collection and disbursement of money, banks often face the risk of default of the loan. These Non-Performing loans (NPLs) should be identified and cared for avoiding vulnerability to other risk. Banks may mitigate this risk using loan loss provisioning (LLP). Using the aggregate data of 56 commercial banks in the last 9 years (2009-2017), this study attempts to evaluate the Impacts of LLP maintained for NPLs on profitability, as it may help to take the level of the LLP, and NPLs in the optimum level of business success.  The dependent variables used in this study are Non-Interest Income to Total Assets and Net-Interest Income to Total Assets as a representative of the profitability of a bank. The dependent variables are analyzed using Least Square Multiple Regression on three independent variables, which were Gross NPL to Total Loans Outstanding, Loan Loss Provision Maintained, and Surplus/ (Shortfall) resulted from the required loan provisioning. The result showed that the profitability is very significantly influenced by the independent variables. NPLs and LLPs maintained by the commercial banks negatively related with the profitability of the business, especially LLPs shown statistical significance to impact on profitability negatively. it is better to take the LLPs and NPLs in the minimum level for maximum profitability of banks.

scholarly journals Discretionary provisioning practices among Western European banks

2017 ◽  
Vol 9 (1) ◽  
pp. 109-118 ◽  
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.

scholarly journals ANALISIS INCOME SMOOTHING PADA PERBANKAN ISLAM NEGARA-NEGARA TELUK DI TIMUR TENGAH

2017 ◽  
Vol 6 (2) ◽  
pp. 55-64
Author(s):  
Prima Shofiani
Keyword(s):  
Income Smoothing ◽  
Capital Adequacy ◽  
Loan Loss ◽  
Loan Loss Provision ◽  
Capital Adequacy Ratio

Penelitian ini bertujuan menguji income smoothing menggunakan loan loss provision (LLP) pada perbankan Islam. Sampel penelitian ini adalah bank-bank Islam negara-negara Teluk Timur Tengah. Variabel dependen dalam penelitian ini adalah loan loss provision (LLP) dan variabel independen adalah total pembiayaan, non performing finance (NPF) dan capital adequacy ratio (CAR). Analisis data menggunakan regresi data panel dengan EViews 7. Hasil penelitian menunjukkan bahwa non performing finance (NPF) berpengaruh positif terhadap LLP. Total pembiayaan tidak berpengaruh positif terhadap loan loss provision (LLP) dan capital adequacy ratio (CAR) tidak berpengaruh positif terhadap loan loss provision (LLP).   Kata Kunci: loan loss provision (LLP), Income smoothing, Bank Islam

scholarly journals LENDING GROWTH AS A FIQH IMPLICATION TOWARD PRODUCT DEVELOPMENT OF ISLAMIC BANK IN INDONESIA

INOVATOR ◽  
2017 ◽  
Vol 6 (2) ◽  
pp. 69
Author(s):  
Riris Aishah Prasetyowati
Keyword(s):  
Product Development ◽  
Income Smoothing ◽  
Gdp Growth ◽  
Islamic Banks ◽  
Business Unit ◽  
Loan Loss ◽  
Loan Loss Provision ◽  
Islamic Bank ◽  
Gdp Growth Rate ◽  
Equity Ratio

This study aim to examine the financing growth of Islamic bank in Indonesia with the provisions system and proof that there is a procyclicality and income smoothing behavior of bank manager. The objects of this study are Islamic Banks and Islamic Business Unit in Indonesia period of 2000 – 2016. This study specifically estimates a different calculation in every component of discretionary and non-discretionary in Islamic bank financing with the variable controlsuch as deposit growth, equity ratio, and total asset. The equation will be tested by using the regression system estimation and the validity tested by AR and Hansen test. The result of this study quantitatively proved that there is a pattern of procyclicality behavior in Islamic bank consistent with hypothesis and significantly has negative correlation described by the relation of loan loss provision with the coefficient of GDP growth rate: -0,207. From this result in accordance with the fiqh platform, for all forms of muamalah is “al ashlufilmu?amalahilla al-ibahahyadulludaliil „alaatahriimiha” (the origin of everything is allowed unless there is proof that forbid it), which means that by using the theory of fiqh rules the product development of Islamic bank can be done and expanded.

scholarly journals Credit Risk and Banks’ Profitability in Malaysia

2018 ◽  
Vol 1 (1) ◽  
Author(s):  
Bakri Abdul Karim ◽  
Norlina Kadri ◽  
Kelvin Lee Yong Min
Keyword(s):  
Credit Risk ◽  
Commercial Banks ◽  
Least Square ◽  
Loan Loss ◽  
Ordinary Least Square ◽  
Loan Loss Provision ◽  
Negative Effect ◽  
Empirical Tests ◽  
The Relationship ◽  
Positive Effect

This paper examines the relationship between credit risk and profitability of Malaysian local commercial banks which consist of eight banks they are Maybank, CIMB Bank, Hong Leong Bank, Public Bank, RHB Bank, AmBank, Alliance Bank, and Affin Bank. For the purpose of analysis this study covers a period of eight years from 2005 to 2012. The empirical tests employed in this study are Pooled Ordinary Least Square (OLS) and Panel regression. Based on the findings of this study its shows that the non-performing loan to total loan ratio (NPL/LA) and the ratio of loan loss provision to total loan (LLP/LA) have a negative effect on profitability meanwhile the total loan to total deposit ratio (LA/TD) found to have a positive effect on the return on asset (ROA). Overall the results of this study concluded that to some degree, Malaysia’s commercial banks have a very good credit risk policy.

scholarly journals IAS 39, income smoothing, and pro-cyclicality: evidence from Hong Kong banks

2016 ◽  
Vol 8 (1) ◽  
pp. 80-94 ◽  
Author(s):  
Azira Abdul Adzis ◽  
David W.L. Tripe ◽  
Paul Dunmore
Keyword(s):  
Hong Kong ◽  
East Asia ◽  
Financial Reporting ◽  
Income Smoothing ◽  
Loan Loss ◽  
Content Type ◽  
Loan Loss Provisions ◽  
Ias 39 ◽  
Cyclical Behavior ◽  
East Asia Region

Purpose The purpose of this study is to investigate the impact of International Accounting Standard 39 (IAS 39) on income-smoothing activities and pro-cyclical behavior through loan loss provisions using a sample of Hong Kong banks. Design/methodology/approach Fixed effects estimator is used, and the analysis covers the period from 2000 to 2009. Findings The results suggest that Hong Kong banks engage less in income-smoothing activity after they comply with the IAS 39. No evidence supports loan loss provisions of Hong Kong banks exhibiting more pro-cyclical behavior after IAS 39 adoption. Research limitations/implications Compliance with IAS 39 should improve the quality of bank financial reporting. The reduction in income-smoothing activities among Hong Kong banks after IAS 39 adoption fairly supports the effectiveness of International Financial Reporting Standard (IFRS) and countries that have yet to comply with IFRS may take action to apply the standards. Bank regulators should take pro-active action in addressing the issue of pro-cyclicality of loan loss provisions, as IAS 39 focuses more on improving the financial information quality, while pro-cyclicality is associated with the economic cycles. Originality/value Hong Kong banking industry is unique, as it was among the first IFRS adopters in the East Asia region and it has its own legal framework for developing accounting standards. The results of this study are expected to shed some light on the effects of IAS 39 adoption on income smoothing and pro-cyclicality of banks in the East Asia region, where the accounting cultural value dimensions and institutional structures are different than that of European countries.

scholarly journals PRUDENTIAL REGULATORY REGIMES, ACCOUNTING STANDARDS, AND EARNINGS MANAGEMENT IN THE BANKING INDUSTRY

2019 ◽  
Vol 21 (3) ◽  
pp. 367-394 ◽  
Author(s):  
Ali Ashraf ◽  
M. Kabir Hassan ◽  
Kyle J. Putnam ◽  
Arja Turunen-Red
Keyword(s):  
Earnings Management ◽  
Banking Industry ◽  
Accounting Standards ◽  
Income Smoothing ◽  
Loan Loss ◽  
Accounting Standard ◽  
Loan Loss Provision ◽  
Dynamic Provisioning ◽  
Regulatory Regimes

We analyze if a change in accounting standard or a change in prudential regulationimpacts banks’ loan loss provision. We find that, in general, the banks using aprinciples-based accounting standard exhibit a lower level of earnings managementcompared to banks using a rules-based accounting standard. When a country movesfrom pro-cyclical macro-prudential regulations to a dynamic provisioning regime,banks are more likely to set aside a larger amount of loan loss provision for the purposeof income smoothing.

scholarly journals Specialist tenure of audit partner and audit quality

Accounting ◽  
2021 ◽  
pp. 573-580 ◽  
Author(s):  
Zaenal Fanani ◽  
Virmey Mustika Fitriya Budi ◽  
A. A. Gde Satia Utama
Keyword(s):  
Audit Quality ◽  
Financial Statements ◽  
Regression Method ◽  
Least Square ◽  
Loan Loss ◽  
Ols Regression ◽  
Ordinary Least Square ◽  
Loan Loss Provision

This study aims to determine the ability of the audit quality provided by audit partners to be influenced by seasoned and unseasoned specialists using the Ordinary Least Square (OLS) regression method and discretionary loan loss provision (DLLP). This study shows that the audit quality provided by a specialist partner auditor is higher than the non-specialist. Furthermore, after classifying the specialist partner auditors as seasoned and unseasoned, the results showed that the audit quality provided by seasoned specialist partner auditors is higher than the non-specialist. While the audit quality provided by the unseasoned specialist partner auditor is almost the same as those provided by the non-specialist. This study contributes to literature on specialist auditors. The longer the audit partner is classified as a specialist, the higher the audit quality. Therefore, it can improve the quality of financial statements.

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