Savings and bank loans dynamics in implementing the new international accounting standard IFRS-9: Malaysia as a case study

Roslan, Syed and Masih, Mansur (2018): Savings and bank loans dynamics in implementing the new international accounting standard IFRS-9: Malaysia as a case study.

Abstract

This paper makes an attempt to assess the impact of the implementation of the new Institutional International Financial Reporting Standard 9 (IFRS-9) which started in 2018 i.e. higher allocation for impairment loans to some of the major countries in the world by analysing the long-run relationship of four-variables which are savings, bank loans, economic growth and trade transactions using Malaysia as the case study.Although we discovered mixed evidence from different methods such as, Engle-Granger, Johansen, ARDL and NARDL cointegration tests due to smaller sample size, we proceeded with our test based on Johansen results to find whether there exists a long-run relationship between all four variables of our interest. We found that bank loans variable is the most leading variable that policymakers can use i.e. set the loans rate as an intermediate target to affect economic growth, savings and trade transactions. The results have strong policy implications for countries like Malaysia.

• Item Type: MPRA Paper
• Language: English
• Keywords: IFRS-9, savings, bank loans, economic growth, trade transactions, NARDL
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

References

Calderon C. and Liu L. (2003). The direction of causality between financial development and economic growth. Journal of Development Economics. 72(1), 321– 334.

Donkor, J. and Frank Agyemang Duah (2013), Relationship between Savings and Credit in Rural Banks with Specific Reference to Ghana, International Journal of Business and Social Science, 4(8), 210-221.

Engle, R. F., and Granger, C. W. (1987). Cointegration and error-correction representation, estimation, and testing. Econometrica, 55(2), 251–276.

Hoff, K., and Stiglitz J. E. (1990). “Introduction: Imperfect Information and Rural Credit Markets – Puzzles and Policy Perspectives”, The World Bank Economic Review, 4(3), 235 – 249

Iqbal,M.Z., Ahmad, N. and Hussain, Z. (2012), Impact of Savings and Credit on Economic Growth in Pakistan, Pakistan Journal of Social Sciences, 32(1), 39-48.

Leitao, N.C. (2012), Bank credit and economic growth, MPRA paper Number 42664, November.

Masih M., Al-Elg A. and Madani, H. (2009) Causality between financial development and economic growth: an application of vector error correction and variance decomposition methods to Saudi Arabia. Applied Economics, 41(13),1691–1699

Pesaran, M.H. and Y. Shin (2002). Long Run Structural Modeling. Econometric Reviews, 21(1), 49-87.

Udry, C., (1994).Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria, Review of Economic Studies, 61(3), 495-526.

Yang Y.Y. and Yi M.H. (2008) Does financial development cause economic growth? Implication for policy in Korea. Journal of Policy Modeling, 30(5), 827–840.

Yaron, J. (1994). What Makes Rural Financial Institutions Successful? The World Bank Research Observer, 9(1), 49 – 70