Bank Loan Portfolio Composition and the Disclosure of Loan Loss Provisions

Empirical Evidence from Malaysian Banks

Abd. Ghafar Ismail, Adelina Tan be Lay

Research output: Contribution to journalReview article

9 Citations (Scopus)

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 languageEnglish
Pages (from-to)147-162
Number of pages16
JournalAsian Review of Accounting
Volume10
Issue number1
DOIs
Publication statusPublished - 1 Jan 2002

Fingerprint

Bank loans
Loan portfolio
Portfolio composition
Loan loss provisions
Disclosure
Empirical evidence
Loans
Write-offs
Non-performing loans
Income
Factors
Ordinary least squares
Economic sectors
Discretionary accruals
Accounting practices
Malaysia
Income smoothing
Influence factors
Default risk

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 journalReview article

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