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Bank loan loss provisions determinants in non-crisis years: evidence from African, European, and Asian countries

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  • Ozili, Peterson K

Abstract

Loan loss provision is an important accounting number in the banking sector. This study investigates the determinants of loan loss provisions in non-crisis years in 28 countries from 2011 to 2018. The countries consist of African, European, and Asian countries. Using the generalized linear model regression and the quantile regression methodology, the results show that institutional quality is a significant determinant of bank loan loss provisions, indicating that the presence of strong institutions decrease the size of bank loan loss provisions. In the regional analyses, it was found that economic growth is a significant determinant of bank loan loss provisions in African and Asian countries. Loan loss provisions are higher in times of economic prosperity in African and Asian countries. This might be due to counter-cyclical provisioning which require African and Asian banks to keep higher loan loss provisions in good economic times so that the high provisions that was set aside in good times could be used as a safety buffer during times of economic downturns in African countries. Bank overhead cost is also a significant determinant of bank loan loss provisions only in Asian countries.

Suggested Citation

  • Ozili, Peterson K, 2024. "Bank loan loss provisions determinants in non-crisis years: evidence from African, European, and Asian countries," MPRA Paper 123289, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:123289
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    References listed on IDEAS

    as
    1. Jeffrey Ng & Walid Saffar & Janus Jian Zhang, 2020. "Policy uncertainty and loan loss provisions in the banking industry," Review of Accounting Studies, Springer, vol. 25(2), pages 726-777, June.
    2. Peterson K. Ozili & Erick Outa, 2017. "Bank loan loss provisions research: A review," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 17(3), pages 144-163, September.
    3. Peterson K. Ozili & Thankom G. Arun, 2023. "What drives bank income smoothing? Evidence from Africa," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 20(3), pages 274-295, September.
    4. Hiep N. Luu & Linh H. Nguyen & John O. S. Wilson, 2023. "Organizational culture, competition and bank loan loss provisioning," The European Journal of Finance, Taylor & Francis Journals, vol. 29(4), pages 393-418, March.
    5. Ren, Meixu & Ke, Konglin & Yu, Xin & Zhao, Jinxuan, 2023. "Local governments' economic growth target pressure and bank loan loss provision: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 1-14.
    6. Basu, Sudipta & Vitanza, Justin & Wang, Wei, 2020. "Asymmetric loan loss provision models," Journal of Accounting and Economics, Elsevier, vol. 70(2).
    7. Nicoletti, Allison, 2018. "The effects of bank regulators and external auditors on loan loss provisions," Journal of Accounting and Economics, Elsevier, vol. 66(1), pages 244-265.
    8. R. Thompson & R. J. Baker, 1981. "Composite Link Functions in Generalized Linear Models," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 30(2), pages 125-131, June.
    9. Danisman, Gamze Ozturk & Demir, Ender & Ozili, Peterson, 2021. "Loan loss provisioning of US banks: Economic policy uncertainty and discretionary behavior," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 923-935.
    10. Lucas Mahieux & Haresh Sapra & Gaoqing Zhang, 2023. "CECL: Timely Loan Loss Provisioning and Bank Regulation," Journal of Accounting Research, Wiley Blackwell, vol. 61(1), pages 3-46, March.
    11. Ozili, Peterson K, 2017. "Bank Loan Loss Provisions, Investor Protection and the Macroeconomy," MPRA Paper 80147, University Library of Munich, Germany.
    12. Conti, Antonio M. & Nobili, Andrea & Signoretti, Federico M., 2023. "Bank capital requirement shocks: A narrative perspective," European Economic Review, Elsevier, vol. 151(C).
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    financial reporting; accruals; loan loss provisions; banks; income smoothing; earnings management; noninterest income; overhead costs; institutional quality;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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