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Weak capital, weak provisions—Credit risk provisioning under IFRS 9

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  • Behn, Markus
  • Couaillier, Cyril

Abstract

We analyse how capital management motives and accounting discretion have affected euro area banks’ provisioning behaviour since the adoption of expected credit loss accounting (IFRS 9). Using granular loan-level data, we investigate provisioning dynamics around firm-level credit events and the macroeconomic shock induced by the COVID-19 pandemic. We find that capital management motives have a strong impact on provisioning under IFRS 9, with less capitalised banks generally provisioning less than their better capitalised peers. Moreover, the bulk of provisioning under IFRS 9 continues to occur at the time of default, in contrast with the expected functioning of the approach. Overall, our findings suggest that IFRS 9 allows for substantial heterogeneity in provisioning across banks, while aggregate provisioning patterns have not been fundamentally altered by the new approach.

Suggested Citation

  • Behn, Markus & Couaillier, Cyril, 2026. "Weak capital, weak provisions—Credit risk provisioning under IFRS 9," Journal of Accounting and Economics, Elsevier, vol. 81(3).
    • Handle: RePEc:eee:jaecon:v:81:y:2026:i:3:s0165410125000928
    DOI: 10.1016/j.jacceco.2025.101856
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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