The pro-cyclicality of loan loss provisions: Evidence from selected east Asian countries

This study investigated the evidence of pro cyclical behaviour of loan loss provision in four East Asian countries, namely Malaysia, Thailand, Singapore, and Hong Kong for the period 1995-2009. Pro-cyclical is defined as building up more loan loss provision during the bad times and reducing them in good times.This study hypothesized that pro-cyclical behaviour of loan loss provision exists in East Asian countries, since they had experienced two types of financial crises – Asian financial crisis in 1997 and global economic crisis in 2008.Utilising a sample of 47 banks, the findings demonstrated that there is evidence of a pro-cyclical pattern in the countries studied, as shown by the negative relationship between loan loss provision and GDP.This study does have a policy implication, where bank regulators should take pro-active action in addressing the issue of pro-cyclicality of loan loss provision because in bad times, increasing loan loss provision would affect the bank’s profit, weaken the bank’s capital, and in turn, diminish its lending activities to creditworthy borrowers

Evidence from selected East Asian countries

This study investigated the evidence of pro cyclical behaviour of loan loss provision in four East Asian countries, namely Malaysia, Thailand, Singapore, and Hong Kong for the period 1995-2009. Pro-cyclical is defined as building up more loan loss provision during the bad times and reducing them in good times.This study hypothesized that pro-cyclical behaviour of loan loss provision exists in East Asian countries, since they had experienced two types of financial crises – Asian financial crisis in 1997 and global economic crisis in 2008.Utilising a sample of 47 banks, the findings demonstrated that there is evidence of a pro-cyclical pattern in the countries studied, as shown by the negative relationship between loan loss provision and GDP.This study does have a policy implication, where bank regulators should take pro-active action in addressing the issue of pro-cyclicality of loan loss provision because in bad times, increasing loan loss provision would affect the bank’s profit, weaken the bank’s capital, and in turn, diminish its lending activities to creditworthy borrowers

FOSTERING LOYALTY AMONG YOUNG CONSUMERS: STRATEGIC APPROACHES FOR BANK SUSTAINABILITY

Objective: This study examines the influence of service quality, satisfaction, bank image, and trust on bank loyalty among youngsters in Malaysia, represented by university students.   Theoretical Framework: This study integrates cognitive and behavioral approaches from the Learning Theory to model customer loyalty. Cognitive processes involve assessing service quality for future decisions, while behavioral aspects focus on observable actions. Both perspectives are essential for understanding and predicting consumer behaviors in the context of loyalty.   Method: Using a sample of 290 university students, data was collected through a self-administered survey and analyzed using Partial Least Square-Structural Equation Modeling (PLS-SEM).   Results and Discussion: The results reveal that only bank image and trust significantly affect loyalty, while satisfaction, bank image, and trust are influenced by service quality but not on students’ loyalty. Interestingly, bank image also influences satisfaction. These findings suggest that banks should prioritize building a positive image and trust among customers to enhance loyalty, rather than solely focusing on service quality and satisfaction.   Research Implications: The study offers practical implications for Malaysian banks, highlighting the importance of loyalty for long-term sustainability and targeting undergraduate students as future assets. It contributes to the literature by exploring these relationships specifically among undergraduate students in Malaysia, offering insights for banks to consolidate their market share and tailor products and services for young consumers   Originality/Value: This pioneering study examines how service quality, satisfaction, image, trust, and loyalty interrelate among Malaysian undergraduate students, offering insights for banks targeting young consumer

The relationship between corruption and credit risk in commercial banks of Pakistan

This study investigates the relationship between corruption and nonperforming loans in Pakistan using a sample of 18 commercial banks for period 2000-2017 where panel regression models of OLS estimator, fixed effect and random effect are employed. The results show a significant negative relationship between control of corruption and credit risk as measured by non-performing loans indicating that tighter control of corruption would lower the non-performing loans. Furthermore, bank size shows a positive impact signifying that larger banks tend to take more excessive risks. In contrast, return on assets and capitalization negatively impacted on the non-performing loans demonstrating that those banks which generate higher earnings and have higher capital portion could reduce the level of non-performing loans. In addition, macroeconomic variables of GDP and inflation rate indicate significant relationship with non-performing loans since good economic situation can increase borrower creditworthiness which leads to lower default payments. Furthermore, both Hausman and Lagrangian Multiplier tests show that the random effect is preferred over fixed effect and OLS, respectively. The findings provide insights to policy makers in making strategic decisions regarding non-performing loans with regards to corruption as well as bank-based and macroeconomic indicator

The relationship between ownership structure, firm specific characteristics and capital structure: evidence from Malaysian middle-capital public listed firms

This study investigates the relationship between ownership structure and firm specific characteristics with capital structure of Malaysian middle-capital pubic listed firms. Although there are many studies conducted on capital structure, very few examine the connection between ownership concentration and ownership dispersion with capital structure particularly in the Malaysian market. By employing a total of 38 middle-capital firms covering period from 2008 to 2012, the results show that debt level in firms with high ownership concentration is significantly different from firms with low concentration level. It is also found that ownership concentration possess a negative relationship with leverage ratio, the measurement for capital structure. This suggests that debt is less likely to be used as monitoring mechanism in highly concentrated firm. This practice could reduce debt related financial distress cost, which in turn lower agency cost although it promotes agency cost related to managerial opportunistic behavior. The findings might help investors to understand more about capital structure and help them to judge corporate governance practice of firms based on the level of ownership concentration and choice of capital structure

Malaysian commercial banks: Do income smoothing, capital management, signaling, and pro-cyclicality exist through loan loss provisions?

Existing literature argues that loan loss provisions are subject to managerial discretion and commonly associated with the issues of income smoothing, capital management, signaling and pro-cyclicality.The main objective of this study is to examine the evidence of income smoothing, capital management, signaling, and pro-cyclical behavior through loan loss provisions of Malaysian commercial banks for period 2002-2012.Using a sample of 15 commercial banks, the results indicate that Malaysian commercial banks do smooth income through loan loss provisions while on the other hand, no conclusive evidence to support that Malaysian commercial banks manage capital through loan loss provisions.As for the signaling and pro-cyclicality, no concrete evidence to support Malaysian commercial banks engages in signaling activities and pro-cyclicality through loan loss provisions.This study also controls for the effect of 2007-2009 global financial crisis on loan loss provisioning of Malaysian commercial banks.The results indicate that Malaysian commercial banks put aside more provisions during the financial crisis

Factors influencing young adults’ debt in Malaysia

This study explores factors affecting debt level among young adults in Malaysia. Previous studies have linked material values, money management skills, and economic factors to credit card debt and student debt, but this study extends the previous research by investigating various forms of consumers’ debt in an emerging market where vulnerable youths are frequently bombarded with materialistic media messages that trigger their spending behaviour. In particular, variables such as pursuits of materialistic attitudes, money management attributes, and income level are examined in this study to see whether they are predictors of youth debt in Malaysia. A self-administered survey on 629 respondents centered around northern part of Malaysia was conducted based on convenience and judgmental sampling techniques. The findings suggest that money management skills and income level significantly influence the debt level of Malaysian young adults. Interestingly, materialism variable is insignificant, implying that young Malaysians represented in this sample do not possess materialistic attitude that lead to indebtness. The findings provide insights to the policy maker and the government to inculcate awareness of basic money management skills to ensure that the younger generation does not fall into the state of excessive debt which could lead to financial insolvency

IAS 39, income smoothing, and pro-cyclicality: evidence from Hong Kong banks

Purpose: The purpose of this study is to investigate the impact of International Accounting Standard 39 (IAS 39) on income-smoothing activities and pro-cyclical behavior through loan loss provisions using a sample of Hong Kong banks. Design/methodology/approach: Fixed effects estimator is used, and the analysis covers the period from 2000 to 2009.Findings: The results suggest that Hong Kong banks engage less in income-smoothing activity after they comply with the IAS 39. No evidence supports loan loss provisions of Hong Kong banks exhibiting more pro-cyclical behavior after IAS 39 adoption.Research limitations/implications: Compliance with IAS 39 should improve the quality of bank financial reporting. The reduction in income-smoothing activities among Hong Kong banks after IAS 39 adoption fairly supports the effectiveness of International Financial Reporting Standard (IFRS) and countries that have yet to comply with IFRS may take action to apply the standards. Bank regulators should take pro-active action in addressing the issue of pro-cyclicality of loan loss provisions, as IAS 39 focuses more on improving the financial information quality, while pro-cyclicality is associated with the economic cycles.Originality/value: Hong Kong banking industry is unique, as it was among the first IFRS adopters in the East Asia region and it has its own legal framework for developing accounting standards. The results of this study are expected to shed some light on the effects of IAS 39 adoption on income smoothing and pro-cyclicality of banks in the East Asia region, where the accounting cultural value dimensions and institutional structures are different than that of European countries

Malaysian residential mortgage loan default: a micro-level analysis

Purpose – This study investigates factors contributing to residential mortgage loans default by utilizing a unique dataset of borrowers’ default data from one of the pioneer lending institutions in Malaysia that provides home financing to the public. Studies on mortgage loan default have been extensively examined, but limited studies utilize the individual borrower’s data, as financial institutions generally hesitant to reveal their customers’ data due to confidentiality issue.Design/methodology/approach – This study uses logistic regression model to analyze 47,158 housing loan borrowers’ data for the year 2016.Findings – The findings suggest that male borrowers, Malay and other type of ethnicity, guarantor availability, loan original balance, loan tenure, loan interest rate and loan-to-value (LTV) ratio are the significant factors that influence mortgage loans default in Malaysia. Research limitations/implications – Future studies may expand the sample by employing data from other types of financial institutions that would give greater insights as findings might vary due to differences in objectives, functions and regulations.In addition, the findings are subjected to the censoring bias where future studies could perform the survival analysis to control for censoring bias and re-validating the findings of the present study.Practical implications –The findings provide valuable insights for lending institutions and the government to formulate housing loan policy in Malaysia. Originality/value – To the best of the authors’ knowledge, this is the first study in the context of emerging economies that uses financial institution’s internal data to investigate factors of mortgage loan default

Graduate qualities and selection criteria in Malaysian financial institutions

The issue of unemployed graduates in Malaysia has triggered a widely concern not only to the government but also to the higher education institutions and employers.In response to this issue, this research attempts to investigate what are the criteria that financial institutions in Malaysia actually seek from graduates to fill job vacancies in their organisation, and what are the shortcomings that they usually find in local university graduates particularly Universiti Utara Malaysia (UUM) graduates.A total of 167 questionnaires have been sent to the human resource manager of each financial institution.The results show that the foremost criterion that financial institutions seek from graduates is pleasant appearance, followed by good CGPA and lastly relevant experience.This research also attempts to identify major skills needed from graduate to be the respondents’ employee.The findings highlight that good communication skills in English, interpersonal skills, teamwork skills, critical thinking skills, and English writing skills are indeed the essential skills needed from graduates.This research finding also discovered that the main weaknesses of UUM graduates are poor in English communication skills and English writing skills