To read this content please select one of the options below:

(excl. tax) 30 days to view and download

Bank Loan Portfolio Composition and the Disclosure of Loan Loss Provisions: Empirical Evidence from Malaysian Banks

Abd. Ghafar Ismail, Adelina Tan Be Lay

Asian Review of Accounting

ISSN: 1321-7348

Article publication date: 1 January 2002

832

Abstract

This study develops a model for loan loss provision which follows the accounting practice in Malaysia. Banks are subject to generally accepted accounting principles (GAAP) in disclosing the loan loss provision. However, the expected loan losses factor should also be taken into account to counter unexpected situations. Prior studies show that banks tend to manipulate the loan loss provision through discretionary accruals for income smoothing purposes. Since the loan loss provision is important to banks' income, this study will determine factors that influence the provision. Empirical evidence state that the loan loss provision is positively related to non‐performing loans, loan loss allowance and write‐offs. Estimation results using ordinary least squares regression prove that the banks follow GAAP guidelines, whereby the loan loss provision depends on the beginning balance and the current write‐offs. In addition, the banks should also consider the expected non‐performing loans in providing loan loss provisions. In determining loan losses, the performance of each economic sector should also be considered due to different default risks.

Citation

Ghafar Ismail, A. and Tan Be Lay, A. (2002), "Bank Loan Portfolio Composition and the Disclosure of Loan Loss Provisions: Empirical Evidence from Malaysian Banks", Asian Review of Accounting, Vol. 10 No. 1, pp. 147-162. https://doi.org/10.1108/eb060754

Publisher

:

MCB UP Ltd

Copyright © 2002, MCB UP Limited

Related articles