Abstract
This study develops a model for loan loss provision which follows the accounting practice in Malaysia. Banks are subject to generally accepted accounting principles (GAAP) in disclosing the loan loss provision. However, the expected loan losses factor should also be taken into account to counter unexpected situations. Prior studies show that banks tend to manipulate the loan loss provision through discretionary accruals for income smoothing purposes. Since the loan loss provision is important to banks' income, this study will determine factors that influence the provision. Empirical evidence state that the loan loss provision is positively related to non-performing loans, loan loss allowance and write-offs. Estimation results using ordinary least squares regression prove that the banks follow GAAP guidelines, whereby the loan loss provision depends on the beginning balance and the current write-offs. In addition, the banks should also consider the expected non-performing loans in providing loan loss provisions. In determining loan losses, the performance of each economic sector should also be considered due to different default risks.
| Original language | English |
|---|---|
| Pages (from-to) | 147-162 |
| Number of pages | 16 |
| Journal | Asian Review of Accounting |
| Volume | 10 |
| Issue number | 1 |
| DOIs | |
| Publication status | Published - 1 Jan 2002 |
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ASJC Scopus subject areas
- Accounting
- Finance
Cite this
Bank Loan Portfolio Composition and the Disclosure of Loan Loss Provisions : Empirical Evidence from Malaysian Banks. / Ismail, Abd. Ghafar; Tan be Lay, Adelina.
In: Asian Review of Accounting, Vol. 10, No. 1, 01.01.2002, p. 147-162.Research output: Contribution to journal › Review article
}
TY - JOUR
T1 - Bank Loan Portfolio Composition and the Disclosure of Loan Loss Provisions
T2 - Empirical Evidence from Malaysian Banks
AU - Ismail, Abd. Ghafar
AU - Tan be Lay, Adelina
PY - 2002/1/1
Y1 - 2002/1/1
N2 - This study develops a model for loan loss provision which follows the accounting practice in Malaysia. Banks are subject to generally accepted accounting principles (GAAP) in disclosing the loan loss provision. However, the expected loan losses factor should also be taken into account to counter unexpected situations. Prior studies show that banks tend to manipulate the loan loss provision through discretionary accruals for income smoothing purposes. Since the loan loss provision is important to banks' income, this study will determine factors that influence the provision. Empirical evidence state that the loan loss provision is positively related to non-performing loans, loan loss allowance and write-offs. Estimation results using ordinary least squares regression prove that the banks follow GAAP guidelines, whereby the loan loss provision depends on the beginning balance and the current write-offs. In addition, the banks should also consider the expected non-performing loans in providing loan loss provisions. In determining loan losses, the performance of each economic sector should also be considered due to different default risks.
AB - This study develops a model for loan loss provision which follows the accounting practice in Malaysia. Banks are subject to generally accepted accounting principles (GAAP) in disclosing the loan loss provision. However, the expected loan losses factor should also be taken into account to counter unexpected situations. Prior studies show that banks tend to manipulate the loan loss provision through discretionary accruals for income smoothing purposes. Since the loan loss provision is important to banks' income, this study will determine factors that influence the provision. Empirical evidence state that the loan loss provision is positively related to non-performing loans, loan loss allowance and write-offs. Estimation results using ordinary least squares regression prove that the banks follow GAAP guidelines, whereby the loan loss provision depends on the beginning balance and the current write-offs. In addition, the banks should also consider the expected non-performing loans in providing loan loss provisions. In determining loan losses, the performance of each economic sector should also be considered due to different default risks.
UR - http://www.scopus.com/inward/record.url?scp=84992974070&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84992974070&partnerID=8YFLogxK
U2 - 10.1108/eb060754
DO - 10.1108/eb060754
M3 - Review article
VL - 10
SP - 147
EP - 162
JO - Asian Review of Accounting
JF - Asian Review of Accounting
SN - 1321-7348
IS - 1
ER -