1. bookVolume 22 (2022): Issue 1 (June 2022)
Journal Details
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Format
Journal
eISSN
1804-1663
First Published
19 Feb 2010
Publication timeframe
4 times per year
Languages
English
access type Open Access

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

Published Online: 17 Mar 2022
Volume & Issue: Volume 22 (2022) - Issue 1 (June 2022)
Page range: 53 - 74
Received: 15 Jun 2021
Accepted: 28 Jan 2022
Journal Details
License
Format
Journal
eISSN
1804-1663
First Published
19 Feb 2010
Publication timeframe
4 times per year
Languages
English
Abstract

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.

Keywords

JEL Classification

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