The purpose of this paper is to come up with factors in loan loss provisioning practices on commercial banks that reflect on collectability of defaulted loans. The need for this research is due to failures in the loan...The purpose of this paper is to come up with factors in loan loss provisioning practices on commercial banks that reflect on collectability of defaulted loans. The need for this research is due to failures in the loan loss provisioning practices which resulted in loan loss provisions （LLP） not reflecting on collectability of the defaulted loans. As a consequence, the banks do not capture their loss expectations and do not continuously reassess their loss expectations as the conditions affecting their borrowers may change. Henceforth, in their financial reporting, the banks do not represent relevantly and faithfully their true underlying credit risks conditions. When the banks do not represent relevantly and faithfully their true underlying risk conditions, they contradict the objectives of useful financial reporting. The results showed that among explanatory variables, bad debt recoveries as a factor in loan loss provisioning practices that reflect on collectability of defaulted loans was rejected. Bad debt recoveries was a biased variable and inconsistent estimator. In context of perceived credit risks as the basis to make credit judgments, an estimate of bad debt recoveries had not fulfilled the criteria. On the other hand, non-performing loans （NPL） as a factor in loan loss provisioning practices was not rejected.展开更多
Thispaper examines the phenomenon whereby state-owned banksin China tend to notonly reducetheirnon-performingloans(NPLs)throughacceptingsettled assets,butalsoovervalue and delay liquidating settled assets. Theresults ...Thispaper examines the phenomenon whereby state-owned banksin China tend to notonly reducetheirnon-performingloans(NPLs)throughacceptingsettled assets,butalsoovervalue and delay liquidating settled assets. Theresults implythatthe state-owned banksexhibitan obvious book loss aversion behavior when disposing their NPLs, i.e. they minimize book loss and hide real credit loss by settling their NPLs with overvalued assets. This paper suggests that this results mainly from improper regulations, weak financial strength, and over-restrictions on NPL disposition. Since introducing a valuation allowance on settled assets, as suggested by the regulatory body, will notproduce the desired effect, this paper proposesthata performance measurementand penaltymechanism basedon non-performing assets instead of NPLs will change the banks’ attitude towards NPL-asset settlement. In addition, a new internal control method governing the entire process from settlement to liquidation isalso suggested.展开更多
文摘The purpose of this paper is to come up with factors in loan loss provisioning practices on commercial banks that reflect on collectability of defaulted loans. The need for this research is due to failures in the loan loss provisioning practices which resulted in loan loss provisions （LLP） not reflecting on collectability of the defaulted loans. As a consequence, the banks do not capture their loss expectations and do not continuously reassess their loss expectations as the conditions affecting their borrowers may change. Henceforth, in their financial reporting, the banks do not represent relevantly and faithfully their true underlying credit risks conditions. When the banks do not represent relevantly and faithfully their true underlying risk conditions, they contradict the objectives of useful financial reporting. The results showed that among explanatory variables, bad debt recoveries as a factor in loan loss provisioning practices that reflect on collectability of defaulted loans was rejected. Bad debt recoveries was a biased variable and inconsistent estimator. In context of perceived credit risks as the basis to make credit judgments, an estimate of bad debt recoveries had not fulfilled the criteria. On the other hand, non-performing loans （NPL） as a factor in loan loss provisioning practices was not rejected.
文摘Thispaper examines the phenomenon whereby state-owned banksin China tend to notonly reducetheirnon-performingloans(NPLs)throughacceptingsettled assets,butalsoovervalue and delay liquidating settled assets. Theresults implythatthe state-owned banksexhibitan obvious book loss aversion behavior when disposing their NPLs, i.e. they minimize book loss and hide real credit loss by settling their NPLs with overvalued assets. This paper suggests that this results mainly from improper regulations, weak financial strength, and over-restrictions on NPL disposition. Since introducing a valuation allowance on settled assets, as suggested by the regulatory body, will notproduce the desired effect, this paper proposesthata performance measurementand penaltymechanism basedon non-performing assets instead of NPLs will change the banks’ attitude towards NPL-asset settlement. In addition, a new internal control method governing the entire process from settlement to liquidation isalso suggested.
