Credit Quality, Bank Provisioning and Systematic Risk in Banking Business

Josanco Floreani, Maurizio Polato, Andrea Paltrinieri and Flavio Pichler

Chapter 1 in Bank Risk, Governance and Regulation, 2015, pp 1-34 from Palgrave Macmillan

Abstract: Abstract Managerial behaviour and accounting policies have a huge impact on corporate earnings and their information content. Reporting of non-performing loans and loan-loss provision (LLP) practices are among the major concerns in the banking industry. Asset quality, exposure to credit risk and provisioning bear great implications in relation to earnings volatility and capital adequacy. Managers may rely on discretionary provisioning as a means of smoothing earnings. While there is a large debate in literature about the incentives to discretionary LLP, there is no doubt that such a practice might hinder the true riskiness of the bank and distort market perceptions. In the same vein, discretionary provisioning may be regarded as a tool for optimizing a bank’s capital.

Keywords: Earning Management; Credit Risk; Systematic Risk; International Financial Reporting Standard; Islamic Bank (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:pal:pmschp:978-1-137-53094-3_1

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DOI: 10.1057/9781137530943_1

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