IDEAS home Printed from https://ideas.repec.org/a/ers/ijfirm/v10y2020i2p79-115.html
   My bibliography  Save this article

The Liquidity Impact on Bond Calculation on Credit Losses: A Malaysian Banks’ Perspective

Author

Listed:
  • Dr B. Valentine Arulanandam
  • Dr C. Selvan
  • K. Li Shin

Abstract

Purpose: Currently in Malaysia, the latest update in Financial Instrument-Credit Losses is of main concern. Previously, accountants have to record credit losses which have already been incurred. This research highlights the ways to calculate credit losses for bond and also how it will affect liquidity of banks. The main objective of this research is to study the liquidity impact of the latest update in bond calculation on credit losses among Malaysian banks. Approach/Methodology/Design: There are several approaches to calculate credit losses. The research will focus on 3 approaches which are; loss-rate approach (Collective Evaluation), loss-rate approach (Individual Evaluation) and vintage-year basis. Findings: Now, with this new update, accountants have to record credit losses based on historical information, current situation, and forecasts, in line with the introduction of CECL model. The paper draws on the impact of CECL model on the credit losses incurred by Malaysian banks using three distinctive methods on bonds and the related liquidity position on its balance sheet. This research uses the eight Malaysian local banks. Practical Implications: This research is very useful for accountants to have a greater understanding about CECL model. Originality/value: There are several studies by Goldwyn (2017), Journal of Accountancy (2016) and, Cohn and Statigna (2016) which resonates with this research, but hardly any seems to be pertaining to the Malaysian context.

Suggested Citation

  • Dr B. Valentine Arulanandam & Dr C. Selvan & K. Li Shin, 2020. "The Liquidity Impact on Bond Calculation on Credit Losses: A Malaysian Banks’ Perspective," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 10(2), pages 79-115.
    • Handle: RePEc:ers:ijfirm:v:10:y:2020:i:2:p:79-115
    as

    Download full text from publisher

    File URL: https://journalfirm.com/journal/216/download
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Cohen, Benjamin H. & Scatigna, Michela, 2016. "Banks and capital requirements: Channels of adjustment," Journal of Banking & Finance, Elsevier, vol. 69(S1), pages 56-69.
    2. Gary S. Corner & Michelle Clark Neely, 2013. "In-depth: can FASB get loan loss accounting just right?," Central Banker, Federal Reserve Bank of St. Louis, issue Spring.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ambrocio, Gene & Hasan, Iftekhar & Jokivuolle, Esa & Ristolainen, Kim, 2020. "Are bank capital requirements optimally set? Evidence from researchers’ views," Journal of Financial Stability, Elsevier, vol. 50(C).
    2. Dang, Van Dan, 2019. "Funding liquidity and bank lending: Evidence from Vietnam," Business and Economic Horizons (BEH), Prague Development Center (PRADEC), vol. 15(2).
    3. Acosta-Smith, Jonathan & Grill, Michael & Lang, Jan Hannes, 2024. "The leverage ratio, risk-taking and bank stability," Journal of Financial Stability, Elsevier, vol. 74(C).
    4. Konstantin Makrelov & Rob Davies & Laurence Harris, 2021. "The impact of higher leverage ratios on the South African economy," Studies in Economics and Econometrics, Taylor & Francis Journals, vol. 45(3), pages 184-207, July.
    5. Ambrocio, Gene & Jokivuolle, Esa, 2017. "Should bank capital requirements be less risk-sensitive because of credit constraints?," Bank of Finland Research Discussion Papers 10/2017, Bank of Finland.
    6. Gauhar Kalkabayeva & Anar Kurmanalina & Zhanar Gusmanova, 2017. "Current State and Forecasting of the Development of Bank Crediting in Kazakhstan," Journal of Advanced Research in Law and Economics, ASERS Publishing, vol. 8(4(26)), pages 1161-1166.
    7. Michael Brei & Leonardo Gambacorta, 2014. "The leverage ratio over the cycle," BIS Working Papers 471, Bank for International Settlements.
    8. Bakkar, Yassine & De Jonghe, Olivier & Tarazi, Amine, 2023. "Does banks’ systemic importance affect their capital structure and balance sheet adjustment processes?," Journal of Banking & Finance, Elsevier, vol. 151(C).
    9. Katsutoshi Shimizu & Kim Cuong Ly, 2018. "Did Basel regulations cause a significant procyclicality?," Working Papers 2018-06, Swansea University, School of Management.
    10. Cecchetti, Stephen G., 2016. "On the separation of monetary and prudential policy: How much of the precrisis consensus remains?," Journal of International Money and Finance, Elsevier, vol. 66(C), pages 157-169.
    11. Manuel A. Muñoz, 2021. "Rethinking Capital Regulation: The Case for a Dividend Prudential Target," International Journal of Central Banking, International Journal of Central Banking, vol. 17(3), pages 271-336, September.
    12. Neryvia Pillay & Konstantin Makrelov, 2025. "The Lending Implications of Banks Holding Excess Capital," South African Journal of Economics, Economic Society of South Africa, vol. 93(1), pages 27-42, March.
    13. Jérémy Pépy & Benjamin Williams, 2018. "Assessing the impact of Basel III on bank behaviour: A micro-founded approach," Working Papers halshs-01844661, HAL.
    14. McCauley, Robert N. & Bénétrix, Agustín S. & McGuire, Patrick M. & von Peter, Goetz, 2019. "Financial deglobalisation in banking?," Journal of International Money and Finance, Elsevier, vol. 94(C), pages 116-131.
    15. Benjamin H Cohen & Gerald A. Edwards, Jr., 2017. "The new era of expected credit loss provisioning," BIS Quarterly Review, Bank for International Settlements, March.
    16. Kimundi, Gillian, 2024. "Heterogeneity in bank responsiveness to policy and economic shocks: The role of capitalization," KBA Centre for Research on Financial Markets and Policy Working Paper Series 81, Kenya Bankers Association (KBA).
    17. Baik, Hyeoncheol & Han, Sumin & Joo, Sunghoon & Lee, Kangbok, 2022. "A bank's optimal capital ratio: A time-varying parameter model to the partial adjustment framework," Journal of Banking & Finance, Elsevier, vol. 142(C).
    18. Fang, Xiang & Jutrsa, David & Peria, Soledad Martinez & Presbitero, Andrea F. & Ratnovski, Lev, 2022. "Bank capital requirements and lending in emerging markets: The role of bank characteristics and economic conditions," Journal of Banking & Finance, Elsevier, vol. 135(C).
    19. Bank for International Settlements, 2016. "Regulatory change and monetary policy," CGFS Papers, Bank for International Settlements, number 55, december.
    20. Xolani Sibande & Dumakude Nxumalo & Keaoleboga Mncube & Steve Koch & Nicola Viegi, 2025. "Regulation and Bank Lending in South Africa: A Narrative Index Approach," South African Journal of Economics, Economic Society of South Africa, vol. 93(1), pages 73-85, March.

    More about this item

    Keywords

    Credit losses; CECL model; financial instrument.;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ers:ijfirm:v:10:y:2020:i:2:p:79-115. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Marios Agiomavritis (email available below). General contact details of provider: https://journalfirm.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.