Bank provision procyclicality under an expected credit loss model: discretionary behaviour and corporate governance implications
| dc.contributor.advisor | de Jager, Phillip | |
| dc.contributor.author | Mooneeapen, Oren | |
| dc.date.accessioned | 2026-09-25T09:00:18Z | |
| dc.date.available | 2026-09-25T09:00:18Z | |
| dc.date.issued | 2026 | |
| dc.date.updated | 2026-09-25T08:59:28Z | |
| dc.description.abstract | Economic cycles, when amplified by their interaction with the banking sector, can transform prosperity into crisis if this interaction is misunderstood and left unchecked. Notably, accounting policy choices can influence this amplification by fuelling excessive credit growth during booms and hindering banks from facilitating recovery in downturns, creating a vicious cycle of instability. In this context, the thesis examines the impact of the IFRS 9 expected credit loss model on the cyclicality of bank loan loss provisions (LLPs), the influence of discretionary behaviours on this cyclicality, and the role of corporate governance in mitigating these influences. It aims to address conflicting findings in the literature by conducting a global study that controls for common factors, providing a consistent analysis and identifying variations by economic classification and region. Fixed-effects panel regression is employed to test the hypotheses of the thesis. Data is sourced from World Bank Open Data and Refinitiv Eikon for the period from 1998 to 2022, with a preference for an extended timeframe, subject to data availability, to capture the fluctuation of LLPs over the business cycle. Analysis beyond traditional frequentist statistical significance testing is done through a more Bayesian approach to inference. The global perspective and more Bayesian approach demonstrate that the extent of LLP procyclicality without IFRS 9 determines the impact of IFRS 9 on LLP procyclicality. IFRS 9 mitigates LLP procyclicality for banks in advanced economies and Europe, while worsening it for banks in emerging and developing economies and Asia. While discretionary behaviours in LLP estimation under IFRS 9 can reduce LLP procyclicality in some contexts, they generally carry the risk of misuse for objectives unrelated to credit risk and worsen LLP procyclicality. There is no robust evidence that current corporate governance mechanisms can mitigate this misuse. This thesis argues that a one-size-fits-all approach through LLPs to reduce the amplification of the boom-and-bust cycles described by the financial instability hypothesis may be ineffective, as the impact of IFRS 9 varies by economic classification, region, and level of procyclicality without IFRS 9. A replicable, transparent, and defendable mechanism is needed to adjust LLPs based on changes in the credit environment and limit potential misuse of discretion. Corporate governance mechanisms have not adequately evolved to address the complexities of discretionary behaviours and associated agency problems under IFRS 9, underscoring the need for their review and update. | |
| dc.identifier.apacitation | Mooneeapen, O. (2026). <i>Bank provision procyclicality under an expected credit loss model: discretionary behaviour and corporate governance implications</i>. (). University of Cape Town ,Faculty of Commerce ,Department of Finance and Tax. Retrieved from http://hdl.handle.net/11427/43815 | en_ZA |
| dc.identifier.chicagocitation | Mooneeapen, Oren. <i>"Bank provision procyclicality under an expected credit loss model: discretionary behaviour and corporate governance implications."</i> ., University of Cape Town ,Faculty of Commerce ,Department of Finance and Tax, 2026. http://hdl.handle.net/11427/43815 | en_ZA |
| dc.identifier.citation | Mooneeapen, O. 2026. Bank provision procyclicality under an expected credit loss model: discretionary behaviour and corporate governance implications. . University of Cape Town ,Faculty of Commerce ,Department of Finance and Tax. http://hdl.handle.net/11427/43815 | en_ZA |
| dc.identifier.ris | TY - Thesis / Dissertation AU - Mooneeapen, Oren AB - Economic cycles, when amplified by their interaction with the banking sector, can transform prosperity into crisis if this interaction is misunderstood and left unchecked. Notably, accounting policy choices can influence this amplification by fuelling excessive credit growth during booms and hindering banks from facilitating recovery in downturns, creating a vicious cycle of instability. In this context, the thesis examines the impact of the IFRS 9 expected credit loss model on the cyclicality of bank loan loss provisions (LLPs), the influence of discretionary behaviours on this cyclicality, and the role of corporate governance in mitigating these influences. It aims to address conflicting findings in the literature by conducting a global study that controls for common factors, providing a consistent analysis and identifying variations by economic classification and region. Fixed-effects panel regression is employed to test the hypotheses of the thesis. Data is sourced from World Bank Open Data and Refinitiv Eikon for the period from 1998 to 2022, with a preference for an extended timeframe, subject to data availability, to capture the fluctuation of LLPs over the business cycle. Analysis beyond traditional frequentist statistical significance testing is done through a more Bayesian approach to inference. The global perspective and more Bayesian approach demonstrate that the extent of LLP procyclicality without IFRS 9 determines the impact of IFRS 9 on LLP procyclicality. IFRS 9 mitigates LLP procyclicality for banks in advanced economies and Europe, while worsening it for banks in emerging and developing economies and Asia. While discretionary behaviours in LLP estimation under IFRS 9 can reduce LLP procyclicality in some contexts, they generally carry the risk of misuse for objectives unrelated to credit risk and worsen LLP procyclicality. There is no robust evidence that current corporate governance mechanisms can mitigate this misuse. This thesis argues that a one-size-fits-all approach through LLPs to reduce the amplification of the boom-and-bust cycles described by the financial instability hypothesis may be ineffective, as the impact of IFRS 9 varies by economic classification, region, and level of procyclicality without IFRS 9. A replicable, transparent, and defendable mechanism is needed to adjust LLPs based on changes in the credit environment and limit potential misuse of discretion. Corporate governance mechanisms have not adequately evolved to address the complexities of discretionary behaviours and associated agency problems under IFRS 9, underscoring the need for their review and update. DA - 2026 DB - OpenUCT DP - University of Cape Town KW - economic cycles KW - banking LK - https://open.uct.ac.za PB - University of Cape Town PY - 2026 T1 - Bank provision procyclicality under an expected credit loss model: discretionary behaviour and corporate governance implications TI - Bank provision procyclicality under an expected credit loss model: discretionary behaviour and corporate governance implications UR - http://hdl.handle.net/11427/43815 ER - | en_ZA |
| dc.identifier.uri | http://hdl.handle.net/11427/43815 | |
| dc.identifier.vancouvercitation | Mooneeapen O. Bank provision procyclicality under an expected credit loss model: discretionary behaviour and corporate governance implications. []. University of Cape Town ,Faculty of Commerce ,Department of Finance and Tax, 2026 [cited yyyy month dd]. Available from: http://hdl.handle.net/11427/43815 | en_ZA |
| dc.language.iso | en | |
| dc.language.rfc3066 | eng | |
| dc.publisher.department | Department of Finance and Tax | |
| dc.publisher.faculty | Faculty of Commerce | |
| dc.publisher.institution | University of Cape Town | |
| dc.subject | economic cycles | |
| dc.subject | banking | |
| dc.title | Bank provision procyclicality under an expected credit loss model: discretionary behaviour and corporate governance implications | |
| dc.type | Thesis / Dissertation | |
| dc.type.qualificationlevel | Doctoral | |
| dc.type.qualificationlevel | PhD |