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

Ozili, Peterson K (2024): Bank loan loss provisions determinants in non-crisis years: evidence from African, European, and Asian countries. Forthcoming in:

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: financial reporting, accruals, loan loss provisions, banks, income smoothing, earnings management, noninterest income, overhead costs, institutional quality
• Subjects: G - Financial Economics > G1 - General Financial Markets; G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation

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