Determinants of Loan Loss Provisions: A Systematic Review of Non-Discretionary Determinants
الكلمات المفتاحية:
Loan Loss provisions, non-discretionary determinants, earnings management, income smoothing, credit quality.
الملخص
This study aims to review the banking accounting literature on the non-discretionary determinants of Loan loss provisions, with the aim of identifying these determinants and their measurement methods. The review included twenty-five studies published between 1994 and 2024 in peer-reviewed journals or academic research. The results of the review revealed significant variation in variables and their measurement methods across studies. The non-discretionary determinants were classified into five main categories: credit quality, credit volume, prior provisions, bank characteristics, and macroeconomic variables. The results also indicated that the most common determinant is non-performing assets, and there was little reliance on macroeconomic variables. The study suggested conducting further critical studies to develop a unified framework for modeling provisions.
References
1. Ahmed, A. S., Takeda, C., & Thomas, S. (1999). Bank loan loss provisions: a reexamination of capital management, earnings management and signaling effects. Journal of accounting and economics, 28(1), 1-25.
2. Albrahimi, A. (2019). Loan loss provisioning and market discipline: Evidence from the IFRS 9 adoption. Available at SSRN 3488058.
3. Anandarajan, A., Hasan, I., & McCarthy, C. (2007). Use of loan loss provisions for capital, earnings management and signalling by Australian banks. Accounting & Finance, 47(3), 357-379.
4. Araújo, A. M. H. B. D., Lustosa, P. R. B., & Paulo, E. (2017). The cyclicality of loan loss provisions under three different accounting models: the United Kingdom, Spain, and Brazil. Revista Contabilidade & Finanças, 29(76), 97-113.
5. Beatty, A., & Liao, S. (2014). Financial accounting in the banking industry: A review of the empirical literature. Journal of accounting and Economics, 58(2-3), 339-383.
6. Beaver, W. H., & Engel, E. E. (1996). Discretionary behavior with respect to allowances for loan losses and the behavior of security prices. Journal of accounting and economics, 22(1-3), 177-206.
7. Bikker, J. A., & Metzemakers, P. A. (2005). Bank provisioning behaviour and procyclicality. Journal of international financial markets, institutions and money, 15(2), 141-157.
8. Biswas, S., Bhattacharya, S. N., Jin, J. Y., Bhattacharya, M., & Sadarangani, P. H. (2024). Loan loss provisions and income smoothing in banks: the role of trade openness and IFRS in BRICS. China Accounting and Finance Review, 26(1), 76-101.
9. Bouvatier, V., & Lepetit, L. (2008). Banks’ procyclical behavior: Does provisioning matter?. Journal of international financial markets, institutions and money, 18(5), 513-526.
10. Bushman, R. M., & Williams, C. D. (2012). Accounting discretion, loan loss provisioning, and discipline of banks’ risk-taking. Journal of accounting and economics, 54(1), 1-18.
11. Ceccobelli, G., & Giosi, A. (2019). Earnings management practices in the banking industry: The role of bank regulation and supervision. Corporate Governance: Search for the Advanced Practices, 6(1), 193-214.
12. Curcio, D., & Hasan, I. (2015). Earnings and capital management and signaling: the use of loan-loss provisions by European banks. The European Journal of Finance, 21(1), 26-50.
13. Danisman, G. O., Demir, E., & Ozili, P. (2021). Loan loss provisioning of US banks: Economic policy uncertainty and discretionary behavior. International Review of Economics & Finance, 71, 923-935.
14. Dechow, P. M., & Skinner, D. J. (2000). Earnings management: Reconciling the views of accounting academics, practitioners, and regulators. Accounting horizons, 14(2), 235-250.
15. Garsva, G., Skuodas, S., & Rudzioniene, K. (2012). Earnings management in European banks: The financial crisis and increased incentives for manipulation through loan loss provisions. Transformations in Business and Economics, 11(2), 504-526.
16. Hansen, G. (2015). Predicting loan loss provisions by including loan type characteristics. International Journal of Business and Finance Research, 9(2), 53-67.
17. Healy, P. (1985). The impact of bonus schemes on the selection of accounting principles. Journal of Accounting and Economics, 7(1-3), 85-107
18. Healy, P. M., & Wahlen, J. M. (1999). A review of the earnings management literature and its implications for standard setting. Accounting horizons, 13(4), 365-383.
19. International Accounting Standards Board (IASB). (2010). Conceptual Framework for Financial Reporting. IASB
20. Ising, P. (2013). Earnings Accruals and Real Activities Management Around Initial Public Offerings: Evidence from Specific Industries. Springer Science & Business Media
21. Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360
22. Jones, J. J. (1991). Earnings management during import relief investigations. Journal of accounting research, 29(2), 193-228.
23. Kanagaretnam, K., Lobo, G. J., & Mathieu, R. (2003). Managerial incentives for income smoothing through bank loan loss provisions. Review of quantitative finance and accounting, 20(1), 63-80.
24. Kanagaretnam, K., Lobo, G. J., & Mathieu, R. (2004). Earnings management to reduce earnings variability: evidence from bank loan loss provisions. Review of Accounting and Finance, 3(1), 128-148.
25. Kim, M. S., & Kross, W. (1998). The impact of the 1989 change in bank capital standards on loan loss provisions and loan write-offs. Journal of accounting and economics, 25(1), 69-99.
26. Liu, C. C., & Ryan, S. G. (2006). Income smoothing over the business cycle: Changes in banks' coordinated management of provisions for loan losses and loan charge‐offs from the pre‐1990 bust to the 1990s boom. The accounting review, 81(2), 421-441.
27. Morris, R. D., Kang, H., & Jie, J. (2016). The determinants and value relevance of banks' discretionary loan loss provisions during the financial crisis. Journal of Contemporary Accounting & Economics, 12(2), 176-190.
Abu-Serdaneh, J. (2018). Bank loan-loss accounts, income smoothing, capital management, signaling and procyclicality: Evidence from Jordan. Journal of Financial Reporting and Accounting, 16(4), 677-693.
28. Oosterbosch, R. V. (2009). Earnings management in the banking industry the consequences of IFRS implementation on discretionary use of loan loss provisions. Unpublished Thesis. Belanda: University Rotterdam.
29. Ozili, P. K. (2019). Bank income smoothing, institutions and corruption. Research in International Business and Finance, 49, 82-99.
30. Ozili, P. K. (2023). Bank earnings management using loan loss provisions: comparing the UK, France, South Africa and Egypt. Journal of Economic and Administrative Sciences, 39(2), 354-365.
31. Ozili, P. K., & Outa, E. (2017). Bank loan loss provisions research: A review. Borsa Istanbul Review, 17(3), 144-163.
32. Pérez, D., Salas-Fumás, V., & Saurina, J. (2008). Earnings and capital management in alternative loan loss provision regulatory regimes. European Accounting Review, 17(3), 423-445.
33. Scott, W. R., & Mary Ann, T. (2015). Financial Accounting Theory (7th ed.). Pearson Canada
34. Skała, D. (2021). Loan loss provisions and income smoothing–do shareholders matter?. International Review of Financial Analysis, 78, 101909.
35. Wahlen, J. M. (1994). The nature of information in commercial bank loan loss disclosures. Accounting Review, 455-478.
36. Wang, X. (2009). Account Management on Loan Loss Provisions for Signaling in two Banking Groups in the United States. Master Thesis . Erasmus School of Economics.
37. Watts, R. L., & Zimmerman, J. L. (1986). Positive accounting theory.
2. Albrahimi, A. (2019). Loan loss provisioning and market discipline: Evidence from the IFRS 9 adoption. Available at SSRN 3488058.
3. Anandarajan, A., Hasan, I., & McCarthy, C. (2007). Use of loan loss provisions for capital, earnings management and signalling by Australian banks. Accounting & Finance, 47(3), 357-379.
4. Araújo, A. M. H. B. D., Lustosa, P. R. B., & Paulo, E. (2017). The cyclicality of loan loss provisions under three different accounting models: the United Kingdom, Spain, and Brazil. Revista Contabilidade & Finanças, 29(76), 97-113.
5. Beatty, A., & Liao, S. (2014). Financial accounting in the banking industry: A review of the empirical literature. Journal of accounting and Economics, 58(2-3), 339-383.
6. Beaver, W. H., & Engel, E. E. (1996). Discretionary behavior with respect to allowances for loan losses and the behavior of security prices. Journal of accounting and economics, 22(1-3), 177-206.
7. Bikker, J. A., & Metzemakers, P. A. (2005). Bank provisioning behaviour and procyclicality. Journal of international financial markets, institutions and money, 15(2), 141-157.
8. Biswas, S., Bhattacharya, S. N., Jin, J. Y., Bhattacharya, M., & Sadarangani, P. H. (2024). Loan loss provisions and income smoothing in banks: the role of trade openness and IFRS in BRICS. China Accounting and Finance Review, 26(1), 76-101.
9. Bouvatier, V., & Lepetit, L. (2008). Banks’ procyclical behavior: Does provisioning matter?. Journal of international financial markets, institutions and money, 18(5), 513-526.
10. Bushman, R. M., & Williams, C. D. (2012). Accounting discretion, loan loss provisioning, and discipline of banks’ risk-taking. Journal of accounting and economics, 54(1), 1-18.
11. Ceccobelli, G., & Giosi, A. (2019). Earnings management practices in the banking industry: The role of bank regulation and supervision. Corporate Governance: Search for the Advanced Practices, 6(1), 193-214.
12. Curcio, D., & Hasan, I. (2015). Earnings and capital management and signaling: the use of loan-loss provisions by European banks. The European Journal of Finance, 21(1), 26-50.
13. Danisman, G. O., Demir, E., & Ozili, P. (2021). Loan loss provisioning of US banks: Economic policy uncertainty and discretionary behavior. International Review of Economics & Finance, 71, 923-935.
14. Dechow, P. M., & Skinner, D. J. (2000). Earnings management: Reconciling the views of accounting academics, practitioners, and regulators. Accounting horizons, 14(2), 235-250.
15. Garsva, G., Skuodas, S., & Rudzioniene, K. (2012). Earnings management in European banks: The financial crisis and increased incentives for manipulation through loan loss provisions. Transformations in Business and Economics, 11(2), 504-526.
16. Hansen, G. (2015). Predicting loan loss provisions by including loan type characteristics. International Journal of Business and Finance Research, 9(2), 53-67.
17. Healy, P. (1985). The impact of bonus schemes on the selection of accounting principles. Journal of Accounting and Economics, 7(1-3), 85-107
18. Healy, P. M., & Wahlen, J. M. (1999). A review of the earnings management literature and its implications for standard setting. Accounting horizons, 13(4), 365-383.
19. International Accounting Standards Board (IASB). (2010). Conceptual Framework for Financial Reporting. IASB
20. Ising, P. (2013). Earnings Accruals and Real Activities Management Around Initial Public Offerings: Evidence from Specific Industries. Springer Science & Business Media
21. Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360
22. Jones, J. J. (1991). Earnings management during import relief investigations. Journal of accounting research, 29(2), 193-228.
23. Kanagaretnam, K., Lobo, G. J., & Mathieu, R. (2003). Managerial incentives for income smoothing through bank loan loss provisions. Review of quantitative finance and accounting, 20(1), 63-80.
24. Kanagaretnam, K., Lobo, G. J., & Mathieu, R. (2004). Earnings management to reduce earnings variability: evidence from bank loan loss provisions. Review of Accounting and Finance, 3(1), 128-148.
25. Kim, M. S., & Kross, W. (1998). The impact of the 1989 change in bank capital standards on loan loss provisions and loan write-offs. Journal of accounting and economics, 25(1), 69-99.
26. Liu, C. C., & Ryan, S. G. (2006). Income smoothing over the business cycle: Changes in banks' coordinated management of provisions for loan losses and loan charge‐offs from the pre‐1990 bust to the 1990s boom. The accounting review, 81(2), 421-441.
27. Morris, R. D., Kang, H., & Jie, J. (2016). The determinants and value relevance of banks' discretionary loan loss provisions during the financial crisis. Journal of Contemporary Accounting & Economics, 12(2), 176-190.
Abu-Serdaneh, J. (2018). Bank loan-loss accounts, income smoothing, capital management, signaling and procyclicality: Evidence from Jordan. Journal of Financial Reporting and Accounting, 16(4), 677-693.
28. Oosterbosch, R. V. (2009). Earnings management in the banking industry the consequences of IFRS implementation on discretionary use of loan loss provisions. Unpublished Thesis. Belanda: University Rotterdam.
29. Ozili, P. K. (2019). Bank income smoothing, institutions and corruption. Research in International Business and Finance, 49, 82-99.
30. Ozili, P. K. (2023). Bank earnings management using loan loss provisions: comparing the UK, France, South Africa and Egypt. Journal of Economic and Administrative Sciences, 39(2), 354-365.
31. Ozili, P. K., & Outa, E. (2017). Bank loan loss provisions research: A review. Borsa Istanbul Review, 17(3), 144-163.
32. Pérez, D., Salas-Fumás, V., & Saurina, J. (2008). Earnings and capital management in alternative loan loss provision regulatory regimes. European Accounting Review, 17(3), 423-445.
33. Scott, W. R., & Mary Ann, T. (2015). Financial Accounting Theory (7th ed.). Pearson Canada
34. Skała, D. (2021). Loan loss provisions and income smoothing–do shareholders matter?. International Review of Financial Analysis, 78, 101909.
35. Wahlen, J. M. (1994). The nature of information in commercial bank loan loss disclosures. Accounting Review, 455-478.
36. Wang, X. (2009). Account Management on Loan Loss Provisions for Signaling in two Banking Groups in the United States. Master Thesis . Erasmus School of Economics.
37. Watts, R. L., & Zimmerman, J. L. (1986). Positive accounting theory.
منشور
2026-03-09
How to Cite
Krej, W. Y., Kanjo , K., & Ahmad , H. (2026). Determinants of Loan Loss Provisions: A Systematic Review of Non-Discretionary Determinants. Journal of Hama University , 8(3). Retrieved from https://hama-univ.edu.sy/ojs/index.php/huj/article/view/3004
