A Proposed Accounting Framework To Hedge Expected Credit Losses In Accordance With Accounting Standards And To Develop Early Warning Indicators In The Libyan Banking Sector
An Applied Study
Keywords:
Provision for loan losses , bank credit, credit losses , early warning indicatorsAbstract
The economic recession has prompted accounting standards for bank loan loss provisions to shift from an incurred loss approach to an expected credit loss approach. Banks' delay in recognizing credit losses under the incurred loss approach to loan loss provisions was said to contribute to the severity of the global financial crisis, as, by providing provisions too little and too late, it could have prevented banks from being more prudent in good times. It reduces the pressure that prompts them to take quick corrective action in difficult times.Therefore, the study aimed to propose an accounting framework to hedge expected credit losses in accordance with accounting standards and to develop early warning indicators in the Libyan banking sector. To achieve this goal, the study targeted Libyan banks as a group, and was applied to five banks out of nineteen banks, where the sample represented what It accounted for approximately 26% during the period from 2008-2022 of the study population. The study concluded with building a proposed accounting framework to hedge expected credit losses in accordance with accounting standards and building early warning indicators in the Libyan banking sector.
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