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European bank loan loss provisioning and technological innovative progress

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  • Simper, Richard
  • Dadoukis, Aristeidis
  • Bryce, Cormac

Abstract

This paper presents an analysis of Loan Loss Provisioning (LLP) behavior of European banks across 26-member states to determine how bad management and Technological Innovative Progress (TIP) has affected bank risk management. Technological improvements in banking have seen advances in both back and front office operations with respect to lending. This is created through increased disembodied technological change capturing improvements in both non-financial and risk management technologies. We find, using a new dynamic LLP model that European banks employed bad management practices in relation to their lending and monitoring practices, leading to higher losses on loans (through increased LLPs). However, the relationship between TIP and LLPs indicates that those banks which increased their technological efficiency with respect to costs had a greater ability to recognize bad loans, and were therefore able to subsequently increase LLPs. That is, improving technology mitigated the impact of bad management practices in European banks.

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  • Simper, Richard & Dadoukis, Aristeidis & Bryce, Cormac, 2019. "European bank loan loss provisioning and technological innovative progress," International Review of Financial Analysis, Elsevier, vol. 63(C), pages 119-130.
    • Handle: RePEc:eee:finana:v:63:y:2019:i:c:p:119-130
    DOI: 10.1016/j.irfa.2019.03.001
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    More about this item

    Keywords

    Loan loss provision accounting; Bad management; Technological innovative progress; Earnings management; Risk management;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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