What Explains Provisioning Behaviour in the Banking Industry? Evidence from an Emerging Economy
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Date
2022-06
Authors
Muriu, Peter
Journal Title
Journal ISSN
Volume Title
Publisher
African Economic Research Consortium
Abstract
Existing literature shows that several factors drive loan loss provisioning among banks.
However, little is known on this topic in the African banking context and specifically
Kenya's banking industry. Using hand-collected annual bank-level data for the period
2002-2018, this paper investigates whether provisioning behaviour depends on banks'
idiosyncratic or systematic factors. The study also investigates whether provisioning is
pro or counter-cyclical through business and credit cycles and whether provisioning
behaviour is heterogeneous for different bank groups. Estimation results reveal
that provisions are used for capital and earnings management, but the findings are
sensitive to bank size and ownership status. Further, the evidence suggests that
provisioning reflects changes in asset quality and is counter-cyclical to the business
cycle