Authors : Hasni Abdullah, Ismail Ahmad and Imbarine Bujang
Abstract: The global financial system is vulnerable due to the weak growth prospects in many advanced economies. Hence, the stability of the banking system remained as an important issue to be resolved. Therefore, it is vital for the banks to properly manage the Loan Loss Provisions (LLPs) to ensure the sufficient amounts are allocated to counterbalance the non-performing loans, especially during financial turmoil. The issue of LLPs has captivated the interest of many researchers as to what extent the LLP has been affected by macroeconomic factors. Thus, the main purpose of the study is to investigate the influence of macroeconomic factors in affecting the provision decision of Malaysian commercial banks. The investigation aims at detecting whether the provisions have been influenced by the macroeconomic factors such as the interest rate, gross domestic products and exchange rate. At the same time, the effect of macroeconomic factors can be examined in order to identify the pro-cyclical or counter-cyclical behavior in relation to the LLP. The Generalized Method of Moments (GMM) is devised in assessing the significant macro factors that influencing the LLP.
Hasni Abdullah, Ismail Ahmad and Imbarine Bujang, 2015. Loan Loss Provisions and Macroeconomic Factors: The Case of Malaysian Commercial Banks. International Business Management, 9: 377-383.