The impact of the expected credit loss model under IFRS 9 on loan loss recognition timeliness: early evidence from the Egyptian banks

Abstract

The central bank of Egypt (CBE) has obligated the Egyptian banks as of 2019 to apply IFRS 9 to provide more timely information about the expected credit losses (ECL). However, the implementation of IFRS 9 concerning the ECL requires a significant judgment that may lead to opportunistic accounting behavior. This research aims to examine the impact of the expected credit loss (ECL) model under IFRS 9 on loan loss recognition timeliness (LLRT) of the Egyptian banks, and also investigates the moderating effect of corporate governance (CG) efficiency namely: board size (BSIZE), board independence (BIND), institutional ownership (INSTIT), CEO duality (DUAL), and audit quality (AQ).The research uses data extracted from the quarterly financial reports for a sample of Egyptian banks from 2018 to 2019, the data were processed using the panel corrected standards errors (PCSE).The results reveal a significant positive effect of applying the ECL model on LLRT, also, the results show a positive effect of BIND on the association between ECL model and LLRT, conversely, there is a negative effect of DUAL, while, there is no effect for each of BSIZE, INSTIT, and AQ.This research introduces early empirical evidence from the emerging markets about the implications of the ECL model under IFRS 9, the research results are important for regulators and investors because it supports the effectiveness of the new model, also, the results are important for future reform programs undertaken by regulators in Egypt such as CBE, moreover, the research adds to the literature of LLRT, by providing evidence regarding the effect of applying the ECL model on LLRT.