The Determinants of Loan Loss Provision Behaviour: Evidence from the UK

This empirical study is designed to examine the determinants of loan loss provision behaviors among UK commercial banks. An unbalanced panel dataset among 124 UK commercial banks is employed, using dynamic estimation methodology GMM to find out the determinants of provisioning behavior from 2011 to 2018. We find that the business cycle is significantly related to LLPs and highly procyclical since LLPs are negatively correlated with the GDP growth rate and positively correlated with the unemployment rate. Furthermore, the findings indicate that LLPs are still used in capital management but with fewer incentives. In addition, we also find some evidence to support that management quality is negatively affected LLPs, banks with good managers tend to hold a lower level of LLPs. However, our results indicate LLPs are insignificant in bank earnings, credit risk exposure, bank size and liquidity