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Based on a sample of 63 listed European banks, this paper investigates the relationship of capital and asset quality, in terms of provisioning and coverage policies, with bank risk and performance during the period 2005Q1-2018Q4. Our results point out different relationships between risk-based and non-risk-based measures of capital with bank risk and performance profiles. In particular, the information content of the leverage ratio appears to be merely related to the bank dimensional feature, whereas the total capital ratio shows a positive and statistically significant relationship with bank stability and is also negatively related to insolvency risk, thereby suggesting a crucial role for capital for the overall bank resilience. In addition, more capitalized banks are associated with higher bank performance. Regarding asset quality, hefty coverage and provisioning policies are generally associated with both lower bank resilience and performance. These results are relevant for disentangling the implications that the regulatory overhaul set out to address the NPLs issue is having on banking activity. [ABSTRACT FROM AUTHOR]

After the subprime crisis, with the worsening of asset quality all around Europe, a lack of harmonization emerged concerning credit classification, monitoring, provisioning and writing-off in the banking industry. A wave of analysis and new regulations by the Supervising Authorities aimed at highlighting best practices and creating a common standard, in order to enhance transparency and accounting data comparability across the European Union. A point of particular attention concerned the usage of forbearance measures and the classification and provisioning of forborne positions. This paper deep-dives into this issue leveraging on the public dataset disclosed by the European Banking Authority, following the 2018 EU-wide Transparency Exercise. The purpose of this paper is twofold. On one side, we want to gauge the extension of the forbearance measures' usage among a sample of major European banks and the drivers of this usage. On the other side, we want to analyze which main factors impact on the loan loss provisioning of forborne positions. [ABSTRACT FROM AUTHOR]

Asset quality is a key indicator of sound banking. However, it is difficult for banking regulators and investors to assess it in the absence of a common, cross-border scheme to classify assets. Currently, no standard is applied universally to categorise loans, the most sizeable asset on banks’ balance sheets. As a corollary, definitions of non-performing loans (NPLs), despite recent steps towards greater harmonisation, continue to vary between jurisdictions. This paper offers a comprehensive analysis of NPLs and considers variations in the treatment of NPLs across countries, accounting regimes and firms. The paper relies on a multidisciplinary perspective and addresses legal, accounting, economic and strategic aspects of loan loss provisioning and NPLs. A harmonised approach to NPL recognition is particularly desirable, in view of the fact that IFRS 9, the new accounting standard on loan loss provisioning, will be mandatory from January 2018. IFRS 9 changes the relationship between NPLs and provisions, by relying on greater judgement to determine provisions. The potential for divergence makes the need for comparable indicators against which to assess asset quality all the greater. [ABSTRACT FROM AUTHOR]