Evaluating Loan Loss Provisioning for Non-Performing Loans and Its Impact on the Profitability of Commercial Banks in Bangladesh

2018 ◽  
Vol 2 (2) ◽  
pp. 33-41
Author(s):  
Fakir Tajul Islam
Keyword(s):  
Commercial Banks ◽  
Statistical Significance ◽  
Least Square ◽  
Business Success ◽  
Optimum Level ◽  
Loan Loss ◽  
Independent Variables ◽  
Loan Loss Provision ◽  
Interest Income ◽  
Dependent Variables

Through the collection and disbursement of money, banks often face the risk of default of the loan. These Non-Performing loans (NPLs) should be identified and cared for avoiding vulnerability to other risk. Banks may mitigate this risk using loan loss provisioning (LLP). Using the aggregate data of 56 commercial banks in the last 9 years (2009-2017), this study attempts to evaluate the Impacts of LLP maintained for NPLs on profitability, as it may help to take the level of the LLP, and NPLs in the optimum level of business success.  The dependent variables used in this study are Non-Interest Income to Total Assets and Net-Interest Income to Total Assets as a representative of the profitability of a bank. The dependent variables are analyzed using Least Square Multiple Regression on three independent variables, which were Gross NPL to Total Loans Outstanding, Loan Loss Provision Maintained, and Surplus/ (Shortfall) resulted from the required loan provisioning. The result showed that the profitability is very significantly influenced by the independent variables. NPLs and LLPs maintained by the commercial banks negatively related with the profitability of the business, especially LLPs shown statistical significance to impact on profitability negatively. it is better to take the LLPs and NPLs in the minimum level for maximum profitability of banks.

scholarly journals Credit Risk and Banks’ Profitability in Malaysia

2018 ◽  
Vol 1 (1) ◽  
Author(s):  
Bakri Abdul Karim ◽  
Norlina Kadri ◽  
Kelvin Lee Yong Min
Keyword(s):  
Credit Risk ◽  
Commercial Banks ◽  
Least Square ◽  
Loan Loss ◽  
Ordinary Least Square ◽  
Loan Loss Provision ◽  
Negative Effect ◽  
Empirical Tests ◽  
The Relationship ◽  
Positive Effect

This paper examines the relationship between credit risk and profitability of Malaysian local commercial banks which consist of eight banks they are Maybank, CIMB Bank, Hong Leong Bank, Public Bank, RHB Bank, AmBank, Alliance Bank, and Affin Bank. For the purpose of analysis this study covers a period of eight years from 2005 to 2012. The empirical tests employed in this study are Pooled Ordinary Least Square (OLS) and Panel regression. Based on the findings of this study its shows that the non-performing loan to total loan ratio (NPL/LA) and the ratio of loan loss provision to total loan (LLP/LA) have a negative effect on profitability meanwhile the total loan to total deposit ratio (LA/TD) found to have a positive effect on the return on asset (ROA). Overall the results of this study concluded that to some degree, Malaysia’s commercial banks have a very good credit risk policy.

Determinants of loan loss provisions of commercial banks in Malaysia

2018 ◽  
Vol 16 (1) ◽  
pp. 24-48 ◽  
Author(s):  
Mohd Yaziz Mohd Isa ◽  
Yap Voon Choong ◽  
David Yong Gun Fie ◽  
Md. Zabid Hj Abdul Rashid
Keyword(s):  
Commercial Banks ◽  
Banking Sector ◽  
Panel Data Analysis ◽  
Faithful Representation ◽  
Loan Loss ◽  
Content Type ◽  
Independent Variables ◽  
Loan Loss Provisions ◽  
Interest Income ◽  
Net Profit

Purpose This paper aims to derive determinants of loan loss provisions (LLPs) of commercial banks in Malaysia. Design/methodology/approach A single-stage panel data analysis multiple regression model that contains a mixture of quantitative and qualitative elements is used. The LLPs is a dependent variable or regressor, and non-performing loan (NPL), interest income, net profit, loans and advances and gross domestic product (GDP) are the independent variables or regressor/explanatory variables. The moderating variable is “credit risk management” (CRM) and the intervening variable is “relevance and faithful representation”. Findings This paper suggests in LLPs, NPLs, interest income, loans and advances, net profit and GDP, as well as the moderating effect of CRM and the intervening effect of relevance and faithful representation, are determinants of the LLPs. The moderating variable CRM strengthens the relationship between the independent variables and the dependent variable. The intervening variable “relevance and faithful representation” brings about a more accurate reporting on the levels of the LLPs. Practical implications The association of the factors is investigated further to detect possible effect of multicollinearity and research to better understand how banks manage their risk as the current investigation is limited to banks in Malaysia. Social implications Loan loss provisioning issues of commercial banks in Malaysia are challenges for both regulators and the banking industry owing to the implementation of several new measures, the convergence with internationally accepted accounting standards and differences in loan grading and applications of different loan loss provisioning standards. Because of these challenges, Bank Negara Malaysia (the Central Bank of Malaysia) has tightened its supervision of commercial banks to ensure that banks are sufficiently and adequately provisioned. The banking sector plays a significant role, and it is important that it is resilient in the face of potential sources of systemic risk. And, like in other major ASEAN economies, the Malaysian’s financial system remains largely bank-dominated. Originality/value This study discovers whether Malaysian banks are sufficiently provisioned for the regional financial integration under the ASEAN Capital Markets Forum (ACMF) by the end of 2015, where several initiates have been initiated, including the harmonization of standards to encourage greater intra-regional investment flows and transactions and continued provisions of the much needed funds by the region’s private sectors.

CREDIT RISK AND COMMERCIAL BANKS’ PERFORMANCE IN NIGERIA: A PANEL MODEL APPROACH

2012 ◽  
Vol 02 (02) ◽  
pp. 31-38 ◽  
Author(s):  
KOLAPO T. Funso ◽  
AYENI R. Kolade ◽  
OKE M. Ojo
Keyword(s):  
Credit Risk ◽  
Commercial Banks ◽  
Commercial Banking ◽  
Loan Loss ◽  
Return On Assets ◽  
Cross Sectional ◽  
Loan Loss Provision ◽  
Panel Model ◽  
Percent Increase ◽  
Credit Analysis

The study carried out an empirical investigation into the quantitative effect of credit risk on the performance of commercial banks in Nigeria over the period of 11 years (2000-2010). Five commercial banking firms were selected on a cross sectional basis for eleven years. The traditional profit theory was employed to formulate profit, measured by Return on Asset (ROA), as a function of the ratio of Non-performing loan to loan & Advances (NPL/LA), ratio of Total loan & Advances to Total deposit (LA/TD) and the ratio of loan loss provision to classified loans (LLP/CL) as measures of credit risk. Panel model analysis was used to estimate the determinants of the profit function. The results showed that the effect of credit risk on bank performance measured by the Return on Assets of banks is cross-sectional invariant. That is the effect is similar across banks in Nigeria, though the degree to which individual banks are affected is not captured by the method of analysis employed in the study. A 100 percent increase in non-performing loan reduces profitability (ROA) by about 6.2 percent, a 100 percent increase in loan loss provision also reduces profitability by about 0.65percent while a 100 percent increase in total loan and advances increase profitability by about 9.6 percent. Based on our findings, it is recommended that banks in Nigeria should enhance their capacity in credit analysis and loan administration while the regulatory authority should pay more attention to banks’ compliance to relevant provisions of the Bank and other Financial Institutions Act (1999) and prudential guidelines.

scholarly journals INKLUSI KEUANGAN DAN LITERASI KEUANGAN TERHADAP KINERJA DAN KEBERLANGSUNGAN SEKTOR USAHA MIKRO KECIL MENENGAH

2021 ◽  
Vol 10 (1) ◽  
pp. 135-152
Author(s):  
Mei Ruli Ninin Hilmawati ◽  
Rohmawati Kusumaningtias
Keyword(s):  
Financial Literacy ◽  
Business Performance ◽  
Partial Least Square ◽  
Financial Inclusion ◽  
Least Square ◽  
Sustainable Business ◽  
Great Opportunity ◽  
Independent Variables ◽  
Dependent Variables ◽  
Least Square Approach

Abstrak: Inklusi Keuangan dan Literasi Keuangan terhadap Kinerja dan Keberlangsungan Sektor Usaha Mikro Kecil Menengah. Suatu kinerja unggul dan bisnis yang berkelanjutkan dapat terwujud apabila terdapat upaya-upaya strategis yang dilakukan. Jawa Timur merupakan salah satu provinsi dengan jumlah UMKM yang cukup banyak memiliki peluang yang besar untuk meningkatkan perekonomian Indonesia. Penelitian ini dilakukan untuk menganalisis pengaruh inklusi keuangan dan literasi keuangan terhadap kinerja dan keberlangsungan sektor UMKM yang terdapat di Kota Surabaya. Penelitian ini merupakan penelitian kuantitatif dengan inklusi keuangan (INKA) dan literasi keuangan (LIKA) sebagai variabel independen, serta kinerja usaha (KIUS) dan keberlangsungan usaha (KEUS) sebagai variabel dependen. Sampel pada penelitian ini berjumlah 113 UMKM yang kemudian dilakukan analisis dengan pendekatan Partial Least Square. Hasil penelitian menyimpulkan bahwa inklusi keuangan tidak berpengaruh terhadap kinerja dan keberlangsungan sektor UMKM. Sedangkan literasi keuangan memiliki pengaruh yang terhadap kinerja dan keberlangsungan sektor UMKM.Kata kunci: Inklusi Keuangan, Literasi Keuangan, Kinerja Bisnis, Keberlangsungan Bisnis, UMKMAbstract: Financial Inclusion and Financial Literacy on the Performance an Sustainability of the MSMEs. Excellent performance and sustainable business can be realized if there are strategic efforts. East Java, as one of the Province with a large number of MSMEs that have a great opportunity to improve the Indonesian economy. This study was conducted to analyze the effect of financial inclusion and financial literacy on the performance and sustainability of MSMEs in Surabaya. This research is a quantitative study with independent variables are financial inclusion (INKA) and financial literacy (LIKA), and the dependent variables are business performance (KIUS) and business continuity (KEUS). The sample in this study amounted to 113 MSMEs which were then analyzed using the Partial Least Square approach. this study concludes that financial inclusion has no effect on the performance and sustainability of MSMEs. while financial literacy has a influence on the performance and sustainability of MSMEs. Keywords: Financial Inclusion, Financial Literacy, Business Performance, Sustainability, MSMEs

scholarly journals Credit Management and Issues of Bad Debts: An Empirical Study of Listed Deposit Banks in Nigeria

2020 ◽  
pp. 32-49
Author(s):  
Peter E. Ayunku ◽  
Akwarandu Uzochukwu
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Commercial Banks ◽  
Random Effect ◽  
Credit Risk Management ◽  
Loan Loss ◽  
Data Set ◽  
Credit Management ◽  
Loan Loss Provision ◽  
The Impact

This study examines the impact of credit management on firm performance amidst bad debts, among Nigerian deposit banks. Five hypotheses were formulated following the dependent variables of Return on Asset and Tobin Q. The independent variables employed for this study include: Loan Loss Provision, Loan to Deposit Ratio, Equity to Asset Ratio, and Loan Write off. This study is based on ex-post facto research design and employed a panel data set collected from fourteen (14) commercial banks over six years ranging from 2014 to 2019 financial year. We analyzed the data set using descriptive statistics, correlation and Ordinary Least Square Regression Technique. The random effect models established that non-performing loan, loan loss provision and equity to asset impact significantly on banks’ performance in both Return on Asset and Tobin-Q models. This suggests that the sampled banks need to establish efficient arrangements to deal with credit risk management. In all, credit risk management indicators considered in this research are important variables in explaining the profitability of Nigerian commercial banks. However, based on the outcome from the empirical analysis, the study carefully recommends that investors and shareholders in these banks should be aware of the possible use of provisions for losses on non-performing loans by managers for smoothening of profits. The shareholders specifically should be ready to meet optimal agency costs to reduce the manager's information asymmetry by hiring competent internal and external auditors.

scholarly journals The impact of discretionary loan loss provision of sharia financing on financial performance

2019 ◽  
Vol 14 (4) ◽  
pp. 34-41
Author(s):  
Z Zulfikar ◽  
Wahyuni Sri
Keyword(s):  
Financial Performance ◽  
Commercial Banks ◽  
Structural Equation ◽  
Equation Modeling ◽  
Loan Loss ◽  
Return On Assets ◽  
Operating Income ◽  
Loan Loss Provision ◽  
Loan Loss Provisions ◽  
The Impact

This study aims to investigate the role of discretionary loan loss provision of sharia financing on the Islamic commercial banks’ financial performance in Indonesia. Partial Least Squares-Structural Equation modeling (PLS-SEM) is used to examine the relationship between loan loss provisions and financial performance in 13 Islamic commercial banks for 4.5 years. The analysis of the outer model shows that the probability of default and loss given default are determinants of loan loss provision, while financial performance is determined by return on assets, non-performing financing, net operating margin, and operating costs on operating income. The results of this study indicate that loan loss provisions have a direct effect on financial performance. Further investigation shows that the return on sharia financing contributes to increasing the impact of loan loss provisions on financial performance (indirect influence). The findings contribute to the literature by showing that discretionary loan loss provision can occur in sharia financing. The study is very important in terms of awareness of management behavior related to financial performance. The study has implications for management policies related to the prerequisites of potential clients.

scholarly journals PENGARUH PRODUK DOMESTIK BRUTO DAN SBI TERHADAP PENERIMAAN PAJAK DI INDONESIA

2020 ◽  
Vol 1 (1) ◽  
Author(s):  
Rahmanta Ginting
Keyword(s):  
Time Series ◽  
Research Result ◽  
Least Square ◽  
Domestic Product ◽  
Tax Revenue ◽  
Ordinary Least Square ◽  
Independent Variables ◽  
Dependent Variables ◽  
Negative Effect ◽  
Positive Effect

The research to analyse effect net domestic product and SBI on tax revenue in Indonesia with independent variables  net domestic product and SBI also dependent variables tax revenue. Data is a time series between 1981 - 2010 with ordinary least square (OLS) and the model of formula used is multiply linier regression.  The research result shows that net domestic product gives a positive effect and significant on tax revenue in Indonesia on 99% level. While SBI has a negative effect and significant on tax revenue in Indonesia on 90% level.

Loan Loss Provisions and Earnings Management in Malaysian Banking Industry

2013 ◽  
Vol 1 (1) ◽  
pp. 93-104
Author(s):  
Hasni Abdullah ◽  
Imbarine Bujang ◽  
Ismail Ahmad
Keyword(s):  
Earnings Management ◽  
Commercial Banks ◽  
Global Financial Crisis ◽  
Banking Industry ◽  
Least Square ◽  
Capital Management ◽  
Loan Loss ◽  
Macroeconomic Factors ◽  
Ordinary Least Square ◽  
Loan Loss Provisions

Objective The main purpose of the study is to investigate the presence of earnings management incentive in affecting the LLP decision of commercial banks in Malaysia, focusing on the relation between loan loss provisions and earnings before tax and provisions. Methodology/Technique This study applies the pooled Ordinary Least Square model in assessing the determinants of the LLP. Findings The empirical findings clearly indicate that the LLP in Malaysian commercial banks is affected by earnings management for that particular period Type of Paper: Empirical paper Novelty : The expansion of the existing research in Malaysia in order to examine the extent to which the Malaysian banks engage in earnings and capital management, extends the period of investigation by considering the recent global financial crisis 2007-2009. Keywords: Loan Loss Provisions; Earnings Management; Capital Management; Macroeconomic Factors; Commercial Banks.

scholarly journals Does the Choice of Democracy Measure Matter? Comparisons between the Two Leading Democracy Indices, Freedom House and Polity IV

2013 ◽  
Vol 48 (2) ◽  
pp. 201-221 ◽  
Author(s):  
John Högström
Keyword(s):  
Comparative Studies ◽  
Statistical Significance ◽  
Explanatory Power ◽  
Empirical Results ◽  
Independent Variables ◽  
Dependent Variables ◽  
Freedom House

This article investigates whether two different measures of democracy generate the same empirical results. The Freedom House and Polity IV measures are used as the dependent variables. The result shows that statistical significance and explanatory power for different independent variables differ greatly, depending on which democracy index is used as the dependent variable. The results also indicate that Freedom House and Polity IV rate many countries’ levels of democracy differently. It is worrying and problematic for comparative studies of democracy that empirical results differ so much according to which measure of democracy is used.

scholarly journals KONVERSI BANK KONVENSIONAL MENJADI BANK SYARIAH DI INDONESIA

2020 ◽  
Vol 1 (1) ◽  
pp. 37-57
Author(s):  
Syamsul Idul Adha ◽  
Hafas Furqani ◽  
Muhammad Adnan
Keyword(s):  
Moral Hazard ◽  
Adverse Selection ◽  
Least Square ◽  
Loan Loss ◽  
Ordinary Least Square ◽  
Loan Loss Provision ◽  
External Auditor ◽  
Auditor Reporting

Konversi bank konvensional menjadi bank syariah di Indonesia merupakan salah satu mekanisme pembentukan bank syariah yang ditandai dengan perubahan secara legal sistem bank konvensional menjadi sistem bank syariah. Penerapan kebijakan konversi menimbulkan permasalahan model mekanisme tata kelola perusahaan yang kurang efektif dalam menjalankan pengawasan terhadap kepatuhan syariah bank, peningkatan risiko adverse selection dan moral hazard pada model pendanaan muḍarabah dan musyarakah, divergensi model bisnis bank syariah yang disertai tingkat efisiensi dan stabilitas aset yang rendah, dan tingkat kualifikasi sumber daya manusia perbankan syariah yang rendah. Penelitian ini bertujuan untuk menganalisis dampak konversi bank konvensional menjadi bank syariah di Indonesia terhadap tata kelola perusahaan, operasional bank, struktur dan kinerja keuangan, dan sumber daya manusia. Penelitian ini merupakan jenis penelitian peristiwa dalam konteks konversi bank konvensional menjadi bank syariah di Indonesia. Data penelitian ini merupakan data panel. Sumber data penelitian berasal dari laporan keuangan yang dipublikasi. Sampel penelitian terdiri atas 7 bank syariah yang dibentuk melalui kebijakan konversi. Alat analisis terdiri dari regresi OLS (Ordinary Least Square) dan Regresi Kuantil. Hasil penelitian menunjukkan bahwa konversi bank konvensional menjadi bank syariah di Indonesia tidak berpengaruh terhadap Tata Kelola Perusahaan, Operasional Bank, Struktur dan Kinerja Keuangan, dan Sumber Daya Manusia. Konversi bank konvensional menjadi bank syariah di Indonesia berpengaruh terhadap indikator Lag Laporan Auditor Eksternal (External Auditor Reporting Lag) sebesar -30,441 dengan nilai R2 sebesar 0,644 yang menunjukkan bahwa model analisis penelitian dapat mengestimasi perubahan Lag Laporan Auditor Eksternal (External Auditor Reporting Lag) sebesar 64,4% dan sisanya 35,5% dijelaskan oleh variabel lain di luar model analisis penelitian. Konversi bank konvensional menjadi bank syariah di Indonesia berpengaruh terhadap indikator Cadangan Kerugian Penurunan Nilai (Loan Loss Provision) sebesar -0,008 dengan nilai R2 sebesar 0,482 yang menunjukkan bahwa model analisis penelitian dapat mengestimasi perubahan Cadangan Kerugian Penurunan Nilai (Loan Loss Provision) sebesar 48,2% dan sisanya 51,8% dijelaskan oleh variabel lain di luar model analisis penelitian.

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