Provisioning Policies for Non-performing Loans: How Best to Ensure a ‘Clean Balance Sheet’?

Research output: Book/ReportReportProfessional

2 Downloads (Pure)

Abstract

New provisioning rules introduced by IFRS 9 are expected to reduce the procyclicality of provisioning. Heterogeneity among banks in the procyclicality of provisioning may not only reflect the formal accounting rules, but also variation in discretionary provisioning policies. This paper presents empirical evidence on the heterogeneity of provisioning procyclicality among significant banks that are directly supervised by the ECB. In particular, this paper finds that provisioning is relatively procyclical at banks that have i) high loans-to-assets ratios, ii) high shares of non-interest income in total operating income, iii) low capitalization rates, and iv) low total assets. Supervisory guidance provided to banks on how to implement IFRS 9 has mostly been of a qualitative nature, and may prove inadequate to prevent an undesirably wide future variation in provisioning among EU banks.
Original languageEnglish
Place of PublicationBrussels
PublisherEuropean Parliament
Number of pages20
Publication statusPublished - Nov 2017

Fingerprint

Non-performing loans
Balance sheet
Provisioning
Procyclicality
Assets
International Financial Reporting Standards
Capitalization
Loans
Guidance
Low income
Empirical evidence
Non-interest income

Cite this

@book{8f988142757c431fa907ee2c7e1bbec5,
title = "Provisioning Policies for Non-performing Loans: How Best to Ensure a ‘Clean Balance Sheet’?",
abstract = "New provisioning rules introduced by IFRS 9 are expected to reduce the procyclicality of provisioning. Heterogeneity among banks in the procyclicality of provisioning may not only reflect the formal accounting rules, but also variation in discretionary provisioning policies. This paper presents empirical evidence on the heterogeneity of provisioning procyclicality among significant banks that are directly supervised by the ECB. In particular, this paper finds that provisioning is relatively procyclical at banks that have i) high loans-to-assets ratios, ii) high shares of non-interest income in total operating income, iii) low capitalization rates, and iv) low total assets. Supervisory guidance provided to banks on how to implement IFRS 9 has mostly been of a qualitative nature, and may prove inadequate to prevent an undesirably wide future variation in provisioning among EU banks.",
author = "Harry Huizinga",
year = "2017",
month = "11",
language = "English",
publisher = "European Parliament",

}

Provisioning Policies for Non-performing Loans: How Best to Ensure a ‘Clean Balance Sheet’? / Huizinga, Harry.

Brussels : European Parliament, 2017. 20 p.

Research output: Book/ReportReportProfessional

TY - BOOK

T1 - Provisioning Policies for Non-performing Loans: How Best to Ensure a ‘Clean Balance Sheet’?

AU - Huizinga, Harry

PY - 2017/11

Y1 - 2017/11

N2 - New provisioning rules introduced by IFRS 9 are expected to reduce the procyclicality of provisioning. Heterogeneity among banks in the procyclicality of provisioning may not only reflect the formal accounting rules, but also variation in discretionary provisioning policies. This paper presents empirical evidence on the heterogeneity of provisioning procyclicality among significant banks that are directly supervised by the ECB. In particular, this paper finds that provisioning is relatively procyclical at banks that have i) high loans-to-assets ratios, ii) high shares of non-interest income in total operating income, iii) low capitalization rates, and iv) low total assets. Supervisory guidance provided to banks on how to implement IFRS 9 has mostly been of a qualitative nature, and may prove inadequate to prevent an undesirably wide future variation in provisioning among EU banks.

AB - New provisioning rules introduced by IFRS 9 are expected to reduce the procyclicality of provisioning. Heterogeneity among banks in the procyclicality of provisioning may not only reflect the formal accounting rules, but also variation in discretionary provisioning policies. This paper presents empirical evidence on the heterogeneity of provisioning procyclicality among significant banks that are directly supervised by the ECB. In particular, this paper finds that provisioning is relatively procyclical at banks that have i) high loans-to-assets ratios, ii) high shares of non-interest income in total operating income, iii) low capitalization rates, and iv) low total assets. Supervisory guidance provided to banks on how to implement IFRS 9 has mostly been of a qualitative nature, and may prove inadequate to prevent an undesirably wide future variation in provisioning among EU banks.

M3 - Report

BT - Provisioning Policies for Non-performing Loans: How Best to Ensure a ‘Clean Balance Sheet’?

PB - European Parliament

CY - Brussels

ER -