IAS 39 and the Practice of Loan Loss Provisioning Throughout Australasia

Journal of Law and Financial Management, Vol. 8, No. 2, pp. 13-19, 2009

11 Pages Posted: 2 Mar 2010

Date Written: February, 26 2010

Abstract

This paper examines the response of a sample of Asian banks to the recognition of loan loss provisions before, during and after the Global Financial Crises. Drawing on empirical data from 2006 through 2009, this paper focuses on the level of loan loss provisioning undertaken by the banks, with a view to generating insights into the effectiveness of the approach to loan impairment and provisioning prescribed by IAS 39 – Financial Instruments: Measurement and Recognition. Given that the focus of impairment decision making under IAS 39 is historically oriented rather than future oriented, we argue this may result in the diminution in the decision usefulness of the content of bank financial statements in the face of imminent, though not yet manifested economic distress. Despite mounting evidence that substantial portions of the globe’s financial and economic fabric lay in a state of severe distress, our analysis of the financial disclosures of the sample of Asian banks shows a picture at odds with this larger reality. We argue that this response is shaped by the requirements of the newly introduced accounting standard and that a broadening of the legitimate sources of evidence upon which loan impairment recognition decisions may be based pursuant to IAS 39 should be a matter of priority.

Keywords: Impairment, Loan loss provision, Banking, IFRS

JEL Classification: M40, M41

Suggested Citation

Finch, Nigel, IAS 39 and the Practice of Loan Loss Provisioning Throughout Australasia (February, 26 2010). Journal of Law and Financial Management, Vol. 8, No. 2, pp. 13-19, 2009. Available at SSRN: https://ssrn.com/abstract=1560227

Nigel Finch (Contact Author)

Saki Partners ( email )

Australia

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