Provisioning policies for non-performing loans: how to best ensure a "clean balance sheet"?

  • New provisioning rules introduced by IFRS 9 are expected to reduce the procyclicality of provisioning. Heterogeneity among banks in the procyclicality of provisioning may not only reflect the formal accounting rules, but also variation in discretionary provisioning policies. This paper presents empirical evidence on the heterogeneity of provisioning procyclicality among significant banks that are directly supervised by the ECB. In particular, this paper finds that provisioning is relatively procyclical at banks that have i) high loans-to-assets ratios, ii) high shares of non-interest income in total operating income, iii) low capitalization rates, and iv) low total assets. Supervisory guidance provided to banks on how to implement IFRS 9 has mostly been of a qualitative nature, and may prove inadequate to prevent an undesirably wide future variation in provisioning among EU banks. This paper was provided at the request of the Committee on Economic and Monetary Affairs of the European Parliament and commissioned and drafted under the responsibility of the Economic Governance Support Unit (EGOV) of the European Parliament. It was originally published on the European Parliament’s webpage.

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Metadaten
Author:Mark WahrenburgORCiDGND
URN:urn:nbn:de:hebis:30:3-452020
URL:http://safe-frankfurt.de/policy-center/policy-publications/policy-publ-detailsview/publicationname/provisioning-policies-for-non-performing-loans-how-to-best-ensure-a-quotclean-balance-sheetquot.html
Parent Title (English):SAFE white paper series ; 51
Series (Serial Number):SAFE white paper series (51)
Publisher:SAFE
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Year of Completion:2017
Year of first Publication:2017
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2017/12/13
Tag:EU banks; IFRS 9; provisioning rules
Page Number:22
HeBIS-PPN:424556480
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License LogoDeutsches Urheberrecht