The paper employs regression analysis to explore operations of loan loss provisions in Vietnamese commercial banks in 2008-2012 in its relationship with bank characteristics. The paper provides theoretical evidence of the opportunism in selection of accounting policy concerning loan risk management by Vietnamese bank managers. | JED October 2014| 89 Factors Affecting the Loan Loss Provision in Vietnamese System of Commercial Banks NGUYỄN THỊ THU HIỀN University of Economics HCMC - hiendhkt@ PHẠM ĐÌNH TUẤN Nha Trang University - phamdinhtuanntu@ ARTICLE INFO ABSTRACT Article history: Received: Dec. 23, 2013 Received in revised form June 03, 2014 Accepted: Sep. 30, 2014 Establishing loan loss provisions may affect bank’s profitability and capital adequacy ratio. The paper employs regression analysis to explore operations of loan loss provisions in Vietnamese commercial banks in 2008-2012 in its relationship with bank characteristics. The results show that loan loss provisions of Vietnamese commercial banks are positively related to size and proportion of bad debt and negatively related to financial risk ratio. The paper provides theoretical evidence of the opportunism in selection of accounting policy concerning loan risk management by Vietnamese bank managers. Keywords: bad debt, loan loss provisions, loan losses 90 | Nguyễn Thị Thu Hiền & Phạm Đình Tuấn | 89 - 106 1. INTRODUCTION Loans are the greatest asset, accounting for 50% to 75% of total assets and representing the biggest source of income for banks (MacDonald & Koch, 2006). Yet, this kind of property also brings about risks when borrowers default on their debt. While managers usually set the highest level for loan loss provisions, accounting standard-setting bodies demand the presentation of loans with value that can be recovered. Moreover, to increase the corporate value, managers tend to establish flexible loan loss provisions (Gray & Clarke, 2004); therefore, the measurement and reconsideration of determinants of loan loss provision must be the major concern of users of bank’s financial statements. Empirical researches on loan loss provisions and its determinants have been carried out in the world since the 1990s (Wall & Koch, 2000). In Vietnam, .
