Usefulness of Expected Credit Loss of Loan Facility for predicting banks, future profitability

Subject Areas : Financial engineering

MARYAM ROSTAMI ¹ , hamidreza kordlouie ² , Gholamhasan Taghi Nataj Malekshah ³ , farhad hanifi ⁴

1 - Department of Accounting, Central Tehran Branch, Islamic Azad University, Tehran, Iran.
2 - Department of Finance Management, Eslamshahr Branch, Islamic Azad University, Tehran, Iran and member of Modern Financial Risk Research Group
3 - Department of Finance Management, Management Faculty , Imam Hossein University, Tehran, Iran.
4 - Department of business Management, Central Tehran Branch, Islamic Azad University, Tehran, Iran.

Received: 2020-11-19 Accepted : 2021-10-16 Published : 2022-03-21

Keywords: expected credit loss of loans, loss impairment of loans, profitability of one-future year, profitability of two-future year,

Abstract :

In this study the usefulness of expected credit loss of loan facility compared with loss impairment for predicting banks, future profitability was tested. The model of Altamuro and Beatty (2010) and Kanagaretnam et al. (2014) was applied for predicting banks, future profitability and for calculating fair value of loans was applied the model of Tschirhart et al. (2007) and expected credit loss is calculated by fair value of loans. The hypotheses of the study were tested through the panel data gathered from 18 listed banks in Tehran Stock Exchange.The findings of the first hypothesis of the research indicated that with 95% assurance loss impairment has a significant and negative relation with one year-future profitability and expected credit loss has no effect. The findings of the second hypothesis of the research indicated that with 95% assurance both of expected credit loss and loss impairment have a significant and negative relation with two year-future profitability. Also the size of assets has a significant and positive relation with one and two year-future profitability.