Loan loss provisioning-a case study of Romanian system smoothing pro-cyclicality

摘要

Loan loss provisioning is an objective of both accounting standard and prudential bank regulation. Still, depending on the perspective, accounting or prudential wise, this objective can be debated between the two, at least from the pro-cyclical effect that may encumber. Local regulators, along with policy makers, argued that the incurred loss model as base of loan loss accounting should be changed in order to incorporate a more forward looking approach in setting loan loss provisions and therefore reduce pro-cyclicality. In this paper we explore the perspective of the Romanian Regulator in order to smoothen the effect of the loan loss provision changes following the transit to the full IFRS provisioning policy on the Romanian banking system.