Interaction between securitization gains and abnormal loan loss provisions: Credit risk retention and fair value accounting

2019 ◽  
Vol 46 (7-8) ◽  
pp. 813-842 ◽  
Author(s):  
Qiuhong Zhao
Keyword(s):  
Credit Risk ◽  
Fair Value ◽  
Fair Value Accounting ◽  
Loan Loss ◽  
Loan Loss Provisions ◽  
Risk Retention

scholarly journals Fair Value Accounting and Earnings Management Using LLP and Realized Gains and Losses: Study in Banking Industry Listed on Indonesia Stock Exchange

2018 ◽  
Vol 14 (2) ◽  
pp. 126-137
Author(s):  
Ice Maria Ulfa ◽  
Bambang Subroto ◽  
Zaki Baridwan
Keyword(s):  
Earnings Management ◽  
Empirical Evidence ◽  
Banking Industry ◽  
Stock Exchange ◽  
Fair Value ◽  
Fair Value Accounting ◽  
Loan Loss ◽  
Trade Off ◽  
Gains And Losses ◽  
The Impact

Abstract: Fair Value Accounting and Earnings Management Using LLP and Realized Gains and Losses: Study in Banking Industry Listed on Indonesia Stock Exchange. This study examines whether earnings management can be limited by the implementation of fair value accounting in banking industry. The main contribution of this study is  providing provide empirical evidence about the impact of fair value accounting on earnings management in Indonesia. Earnings management is proxied by loan loss provision (LLP), the realized of gains and losses, and the trade-off between realized gains and losses and LLP following Bratten et al (2013). The study provides empirical evidence that earnings management is still performed by banks, by using LLP, realized gains and losses and also occurs trade-off between LLP and realized gains and losses as means to perform earnings management in accordance with the needs of management. If banks are exposed to fair value accounting, managers will have more flexibility in reporting banks’ financial performance to present a desired earning, by  providing them with additional earning managements tools. These findings can be informative for policymakers, banking practitioners, and academics.  Keywords: earnings management, fair value accounting, LLP, realized gains and losses, trade-off LLP and realized gains and losses.Abstrak: Akuntansi Nilai Wajar dan Manajemen Laba menggunakan CKPN dan Realized Gains and Losses: Studi pada Industri Perbankan yang terdaftar di Bursa Efek Indonesia. Studi ini bertujuan untuk meneliti apakah manajemen laba dapat dibatasi oleh penerapan akuntansi nilai wajar dalam industri perbankan. Kontribusi dari penelitian ini adalah untuk memberikan bukti empiris tentang dampak penerapan akuntansi nilai wajar pada manajemen laba di Indonesia. Manajemen laba diproksikan oleh cadangan kerugian penurunan nilai (CKPN), realized of gains and losses, dan trade-off antara realized of gains and losses dan CKPN mengikuti model penelitian Bratten et al (2013). Studi ini memberikan bukti empiris bahwa manajemen laba masih dilakukan oleh bank menggunakan CKPN, realized of gains and losses dan juga terjadi trade-off antara CKPN dan realized of gains and losses sebagai sarana manajemen laba sesuai dengan kebutuhan manajemen. Konsekuensi dari paparan bank terhadap akuntansi nilai wajar dapat meningkatkan fleksibilitas manajer dalam melaporkan penghasilan yang diinginkan dengan memberikan mereka alat manajemen laba. Temuan-temuan tersebut dapat bersifat informatif bagi pembuat kebijakan, anggota industri perbankan, dan akademisi. Kata kunci: manajemen laba, akuntansi nilai wajar, CKPN, realized gains and losses, trade-off CKPN dan realized gains and losses.

scholarly journals The Relationship Between Credit Risk Management Practices And Profitability In Malaysian Commercial Bank`S

2019 ◽  
Vol 8 (5C) ◽  
pp. 53-59
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Management Practices ◽  
Secondary Data ◽  
Capital Adequacy ◽  
Credit Risk Management ◽  
Loan Loss ◽  
Commercial Activity ◽  
Loan Loss Provision ◽  
Loan Loss Provisions

This research scope looks into credit risk management and its effect on a specific group of banks with intensive commercial activity within Malaysia. Yearly reports from 8 different banks that rely on secondary data gathered from the span of 3 years (2015-2017), form the essence of this research. Return on assets (ROA) was primarily used in this research to measure profitability. Also, two credit risk measuring methods were used, loan loss provisions ratio (LLPR) and ratio of capital adequacy (CAR). From the results we deduced that commercial bank's profitability related positively to capital adequacy ratio and loan loss provision ratio. Therefore, the research calls upon the need of new management structure that optimally keep credit risk in check and boost banks profitability.

Fair Value Accounting for Financial Instruments: Does It Improve the Association between Bank Leverage and Credit Risk?

2013 ◽  
Vol 88 (4) ◽  
pp. 1143-1177 ◽  
Author(s):  
Elizabeth Blankespoor ◽  
Thomas J. Linsmeier ◽  
Kathy R. Petroni ◽  
Catherine Shakespeare
Keyword(s):  
Credit Risk ◽  
Fair Value ◽  
Financial Instruments ◽  
Fair Value Accounting

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.

Banks’ Discretion Over the Debt Valuation Adjustment for Own Credit Risk

2020 ◽  
pp. 0148558X2097797
Author(s):  
Minyue Dong ◽  
Leonidas Doukakis ◽  
Stephen G. Ryan
Keyword(s):  
Credit Risk ◽  
Accounting Standards ◽  
Small Sample ◽  
Loan Loss ◽  
Yield Spreads ◽  
Loan Loss Provisions ◽  
Bond Yield ◽  
Other Comprehensive Income ◽  
Gains And Losses ◽  
Debt Valuation

During our 2007 to 2015 sample period, firms recorded unrealized gains and losses on fair-valued liabilities attributable to changes in the firms’ own credit risk, referred to as the debt valuation adjustment (DVA), in earnings. Various parties criticized the inclusion of DVA in earnings as counterintuitive and manipulable. Using a small but comprehensive sample of European banks reporting nonzero DVA during this period, we decompose banks’ DVA into a normal portion explained by economic factors (e.g., changes in bond yield spreads) and an abnormal portion (the residual). Controlling for abnormal loan loss provisions (LLP) and realized securities gains and losses (RGL), we find that banks’ abnormal DVA is negatively associated with their premanaged earnings, consistent with banks exercising discretion over DVA to smooth earnings. We further find that banks that record larger LLP or RGL or that have histories of using LLP or RGL to smooth earnings are less likely to exercise discretion over DVA. These findings obtain in the financial crisis but not afterward. Collectively, our findings suggest that banks exercised discretion over DVA substitutably with discretion over LLP and RGL during the crisis. With the caveat that our analysis is limited by a small sample and the inherent difficulties of DVA decomposition, our findings have implications for how bank regulators and investors should interpret banks’ reported DVA, particularly in stress periods such as the crisis, and they provide support for the International Accounting Standards Board and Financial Accounting Standards Board’s (FASB) decisions to require firms to record DVA in other comprehensive income starting in 2018.

scholarly journals Improving Loan Loss Provisioning Framework as a Driver of Economic Growth

2020 ◽  
Vol 14 (2) ◽  
pp. 72-82
Author(s):  
Svetlana Stepanova ◽  
Viktoria Karakchieva
Keyword(s):  
Economic Growth ◽  
Risk Assessment ◽  
Credit Risk ◽  
Financial Statements ◽  
Assessment Method ◽  
Capital Adequacy ◽  
Loan Loss ◽  
Credit Risk Assessment ◽  
Loan Loss Provisions ◽  
Credit Institutions

Various aspects of credit risk have been studied by many researchers. Scientists and practitioners consider different credit risk assessment methods depending on its application, e.g. to determine capital adequacy, to make loss loan provisions, or to estimate its influence on the interest rate. At the same time, there are almost no studies that consider the relationship between loan loss provisioning framework and loan decisions. The study seeks to 1) understand how the practices and procedures of loan loss provisioning impact total gross loans of Russian banks, and 2) identify constraints for insufficient levels of lending and factors that can foster lending.With the use of an econometric model we estimate a quantitative effect of credit portfolio on the growth of loan loss provisions. We base our model on data derived from financial statements of 400 Russian credit institutions between 2014 and 2019. In addition to our empirical model, we analyze statistical data on the development of the Russian banking system and compare the loan loss provisions in Russian and foreign financial organizations. The estimates are based on Russian official statistics and financial statements of banks within and outside Russia. The study reveals that the existing credit risk assessment method that rests on the regulations provided by the Bank of Russia is responsible for excessive loan loss provisions accumulated by Russian banks. This, in turn, affects the volumes of bank loans.In our research we have arrived at the conclusion that the existing loan loss provisioning is excessive. Current loan loss provisions do not correspond to real lending losses. They negatively affect the financial results of credit institutions, resulting in ungrounded refusals to lend, which in turn limits economic growth. These results support the rationale for reinventing the existing framework of loan loss provisioning.

Fiscal Deficits, Bank Credit Risk, and Loan-Loss Provisions

2020 ◽  
pp. 1-53 ◽  
Author(s):  
Felipe Bastos Gurgel Silva
Keyword(s):  
Credit Risk ◽  
Financial Distress ◽  
Financial Stability ◽  
Banking Sector ◽  
Important Variable ◽  
Loan Loss ◽  
Additional Source ◽  
Fiscal Deficits ◽  
Loan Loss Provisions ◽  
Stabilization Policies

Abstract Fiscal deficits represent an important variable for banks’ aggregate credit risk, revealing governments’ ability to curb banks’ losses in bad states, either with direct cash infusions or with macroeconomic stabilization policies. Deteriorating deficits are associated with increasing financial distress of the banking sector and higher levels of loan-loss provisions. The effect is more pronounced for banks with a strong aversion to underprovisioning and is robust to a battery of tests and to the identification of fiscal shocks using military-spending data. This association represents an additional source of negative comovement between provisions and economic conditions, with implications for financial stability.

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