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Banks’ Credit Losses and Provisioning over the Business Cycle: Implications for IFRS

Review of economic perspectives, 2022-03, Vol.22 (1), p.53-74 [Peer Reviewed Journal]

2022. This work is published under http://creativecommons.org/licenses/by-nc-nd/3.0 (the “License”). Notwithstanding the ProQuest Terms and Conditions, you may use this content in accordance with the terms of the License. ;ISSN: 1804-1663 ;ISSN: 1213-2446 ;EISSN: 1804-1663 ;DOI: 10.2478/revecp-2022-0003

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  • Title:
    Banks’ Credit Losses and Provisioning over the Business Cycle: Implications for IFRS
  • Author: Malovaná, Simona ; Tesařová, Žaneta
  • Subjects: Accounting ; Banking industry ; Banks ; Business cycles ; C22 ; Credit losses ; Credit risk ; E32 ; G21 ; IFRS 9 ; International finance ; procyclicality ; Provisions
  • Is Part Of: Review of economic perspectives, 2022-03, Vol.22 (1), p.53-74
  • Description: This article examines the procyclicality of banks’ credit losses and provisions in the Czech Republic using pre-2018 data and then discusses the implications of the findings for provisioning in stage 3 under IFRS 9. This analysis is possible because the majority of banks seem to have aligned their accounting definitions of default with the regulatory definition before the implementation of IFRS 9. Based on our results, we find significant asymmetries in the Czech banks’ behaviour over the cycle. Firstly, provisioning procyclicality is the strongest in the later contractionary phase and the early recovery phase, while it is non-existent in the early contractionary phase. Secondly, banks with higher credit risk behave more procyclically than their peers with lower credit risk. If this behaviour persists under IFRS 9 and banks do not change their provisioning behaviour from backward to forward-looking, it may lead to a delayed transfer of exposures between stages and aggravate cyclical fluctuations.
  • Publisher: Brno: Sciendo
  • Language: English;Czech
  • Identifier: ISSN: 1804-1663
    ISSN: 1213-2446
    EISSN: 1804-1663
    DOI: 10.2478/revecp-2022-0003
  • Source: Alma/SFX Local Collection
    De Gruyter Open Access Journals
    ProQuest Central
    DOAJ Directory of Open Access Journals
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