Loan Loss Provisioning Methodology On Non-Performing Loans Of Malaysia’s Commercial Banks : A Longitudinal Panel Data Analysis Using Econometric Modelling

by Assoc. Prof. Dr. Mohd Yaziz Bin Mohd Isa

Abstract

The purpose of this paper is to research to come up with factors that determine loan loss provisions of non-performing loans of commercial banks in Malaysia, that is, factors reflecting the collectability of defaulted loans so that financial statements of banks reflect their true underlying risk conditions.

The results of research show among explanatory variables, bad debt recoveries as a factor to determine loan loss provisions that reflect the collectability of the defaulted loan, is rejected. The variable is a biased and inconsistent estimator. In the context of perceived credit risk – an estimate of recoveries has not fulfilled a perception of credit risk in the collectability of defaulted loans.

On the other hand, non-performing loans as a factor to determine loan loss provisions that reflect the collectability of the defaulted loan, is not rejected. It is proven that it is not a biased estimator.

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