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Loan loss provisioning practices of Asian banks

Author

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  • Frank Packer
  • Haibin Zhu

Abstract

In the wake of the Asian financial crisis, many regimes in Asia adopted stricter provisioning requirements, as well as discretionary measures, with the objective of increasing provisioning in good times in response to rising levels of risk. Based on a final sample of 240 banks in 12 Asian economies, the evidence is that countercyclical loan loss provisioning has dominated throughout emerging Asia, most strikingly so in the case of India. Thus, loan loss provisioning did not simply become more conservative at all points in time subsequent to the Asian financial crisis, but actively leaned in a fashion that ameliorated swings in earnings and the macroeconomy.

Suggested Citation

  • Frank Packer & Haibin Zhu, 2012. "Loan loss provisioning practices of Asian banks," BIS Working Papers 375, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:375
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    References listed on IDEAS

    as
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    3. Vincent Bouvatier & Laetitia Lepetit, 2006. "Banks'procyclicality behavior: does provisioning matter?," Cahiers de la Maison des Sciences Economiques bla06035, Université Panthéon-Sorbonne (Paris 1).
    4. Sarawan Angklomkliew & Jason George & Frank Packer, 2009. "Issues and developments in loan loss provisioning: the case of Asia," BIS Quarterly Review, Bank for International Settlements, December.
    5. Claudio Borio & Craig Furfine & Philip Lowe, 2001. "Procyclicality of the financial system and financial stability: issues and policy options," BIS Papers chapters, in: Bank for International Settlements (ed.), Marrying the macro- and micro-prudential dimensions of financial stability, volume 1, pages 1-57, Bank for International Settlements.
    6. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    7. Claudio Borio & Philip Lowe, 2001. "To provision or not to provision," BIS Quarterly Review, Bank for International Settlements, September.
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    More about this item

    Keywords

    Loan loss provisioning; financial system procyclicality; international accounting standards; earnings smoothing; macroprudential policy;
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