Loan loss provisions in Polish banking sector
Loan loss provisions in Polish banking sector

Summary/Abstract: The following study concerns two main issues. To begin with, we review the research on the impact of bank-specific variables and macroeceonomic determinants of loan loss provisions. Furthermore, the topic of income smoothing is reviewed. Lastly, we consider the relation of LLP to the financial variables: assets, loans and net banking income. Our sample consists of commercial banks and cooperative banks in Poland in the period of 2008–2015. We found that the average ratio of LLP to assets is more stable in cooperative banks than in commercial banks. Moreover, the analysis of average ratio of LLP to loans showed that cooperative banks are characterized by a gradual rise since 2010 and a sharp increase in 2015. In comparison, in commercial banks since 2010 we can see a slight decline in relation of LLP to loans. According to our findings, the study of the average level of LLP compared to net banking income shows that in cooperative banks the share of LLP in net banking income is increasing for the period of 2008–2014 to about 7%, but after an intense growth in 2009, in 2010 and 2011 the banking sector recorded a significant fall in LLP share in net banking income. After 2011 commercial banks have stabilized the relation of LLP to net banking income at the level of about 14%.

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