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Bank Loan Loss Provisions, Investor Protection and the Macroeconomy

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  • Ozili, Peterson K

Abstract

This study investigates the non-discretionary determinants of bank loan loss provisions in Africa after controlling for macroeconomic fluctuation, financial development and investor protection. We find that non-performing loans, loan-to-asset ratio and loan growth are significant non-discretionary drivers of bank provisions in the African region. We observe that bank provision is a positive function of non-performing loans up to a threshold beyond which bank provisions will no longer increase as non-performing loans increases. Also, bank loan-to-asset ratio is a significant driver of bank provisions when African banks have higher loan-to-asset ratios. Also, larger banks in financially developed African countries have fewer loan loss provisions while increase in bank lending leads to fewer bank provisions in countries with strong investor protection. Finally, higher bank lending is associated with higher bank provisions during economic boom. The findings have implications.

Suggested Citation

  • Ozili, Peterson K, 2018. "Bank Loan Loss Provisions, Investor Protection and the Macroeconomy," MPRA Paper 80281, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:80281
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    References listed on IDEAS

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    Cited by:

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    2. Zhang, Ying & Zhai, Ling & Sun, Haijia, 2019. "Does the level of financial leasing matter in the impact of bank lending on economic growth: Evidence from the global market (2006–2016)," Finance Research Letters, Elsevier, vol. 30(C), pages 352-359.
    3. Yosra Mnif & Imen Slimi, 2023. "Former auditors on the audit committee and earnings management: Evidence from African banks," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(2), pages 2383-2420, June.
    4. 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.
    5. Ozili, Peterson K, 2019. "Bank Income Smoothing, Institutions and Corruption," MPRA Paper 92339, University Library of Munich, Germany.
    6. Ozili, Peterson K, 2022. "Determinants of bank income smoothing using loan loss provisions in the United Kingdom," MPRA Paper 112047, University Library of Munich, Germany.
    7. Albulena Shala & Valentin Toçi & Skender Ahmeti, 2020. "Income smoothing through loan loss provisions in south and Eastern European banks," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 38(2), pages 429-452.
    8. Ozili, Peterson K, 2020. "Bank loan loss provisioning during election years: cross-country evidence," MPRA Paper 96639, University Library of Munich, Germany.
    9. Ozili, Peterson K, 2019. "Bank Earnings Management using Commission and Fee Income: the Role of Investor Protection and Economic Fluctuation," MPRA Paper 101824, University Library of Munich, Germany.
    10. Ozili, Peterson K, 2020. "Financial inclusion and business cycles," MPRA Paper 102054, University Library of Munich, Germany.
    11. Ozili, Peterson K., 2019. "Bank income smoothing, institutions and corruption," Research in International Business and Finance, Elsevier, vol. 49(C), pages 82-99.
    12. Ozili, Peterson K, 2019. "Bank loan loss provisions, risk-taking and bank intangibles," MPRA Paper 90273, University Library of Munich, Germany.

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    More about this item

    Keywords

    Loan Loss Provisions; Africa; Income Smoothing; Procyclicality; Economic Cycle; Investor Protection; Banks; Macroeconomy; Credit Risk; Financial Development;
    All these keywords.

    JEL classification:

    • A1 - General Economics and Teaching - - General Economics
    • A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F3 - International Economics - - International Finance
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • M1 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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