Loan loss reserves of weakly provisioned banks: evidence from major Tunisian banks

Abstract

The aim of this study is to investigate the determinants of loan loss reserves of weakly provisioned banks. We use data on major Tunisian banks over the period 1998-2006. The results show that loan loss allowances are significantly driven by earnings management objectives and the general attitude toward risk. However, it appears that the quality of assets does not explain banks' provisioning policy. It seems also that weakly provisioned banks are less stringent in the control of their risks and are not fully in line with the banking regulation. Finally, our findings show a significant link between the provisioning for loan losses, economic conditions and fiscal reforms.weakly provisioned banks; loan loss reserves; financial system stability; banking regulation; Tunisia; loan loss allowances; earnings management; risk attitudes; provisioning policy; risk control; loan losses; economic conditions; fiscal reforms.