Effect of IFRS9’s Fast Recognition of Loan Loss Provisions on the Management Performance of Banking Industry
Asian Tax Journal Vol. 24 No. 2 (2023), pp. 155-183
Abstract
This study investigates how the implementation of IFRS9 affects the management of banking industry focusing on fast recognition of loan loss provisions (“LLP” hereafter). IFRS9 itself narrowly reduced the balance of financial assets of major commercial banks, while the decrements were totally caused by the fast recognition of LLP, which is forced by IFRS9. Fast recognition of LLP significantly increased the ratio of LLP out of financial assets (“LLP ratio” hereafter) in the end of 2017, when the conversion into IFRS9 from IAS39 was coercive in banking industry, and negatively affected the management performance of major commercial banks in 2018. LLP ratio has shown a long－term decreasing trend reflecting efficient assets management, while it temporarily soared in the end of 2017 with the enforcement of IFRS9 and was partially reversed in 2020 under specific circumstances of a few commercial banks.
Keywords
- IFRS9
- Loan loss privisions
- Loss recognition
- Banking industry
- Management performance
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