Discretionary Provisioning Practices Among Western European Banks

Journal of Financial Economic Policy, 9(1), 109-118.

12 Pages Posted: 25 Aug 2017

See all articles by Peterson K Ozili

Peterson K Ozili

University of Essex - Essex Business School; Central Bank of Nigeria

Date Written: 2017

Abstract

The purpose of this study is to investigate whether discretionary provisioning by Western European banks is driven by income smoothing or credit risk considerations. We find evidence that discretionary provisioning by Western European banks is driven by income smoothing incentives in the post-financial crisis period, particularly, among listed banks. Also, we observe that discretionary provisioning is significantly influenced by credit risk factors, mainly, non-performing loans and loan growth. Also, we find that discretionary provisioning by Western European banks is procyclical with fluctuations in the economic cycle. Overall, the implication of the findings is that discretionary provisioning among Western European banks is driven by both income smoothing and credit risk considerations.

Keywords: Managerial Discretion, Income smoothing, Bank regulation, Loan loss provisions, Western Europe, Procyclicality

JEL Classification: C21, C23, G21, M41

Suggested Citation

Ozili, Peterson Kitakogelu, Discretionary Provisioning Practices Among Western European Banks (2017). Journal of Financial Economic Policy, 9(1), 109-118.. Available at SSRN: https://ssrn.com/abstract=3025139

Peterson Kitakogelu Ozili (Contact Author)

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Central Bank of Nigeria ( email )

Plot 33, Abubakar Tafawa Balewa Way
Central Business District, Cadastral Zone
Abuja
Nigeria

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