The Differential Effect on Allowance for Bad Debt Loan of Savings Bank by Deferred Loan Incidental Expenses

Recently, it is concern that financial soundness of the savings bank gets deteriorated due to the execution of the loans for low-credit customers through loan consultants. This study examines the effect of the deferred loan incidental expenses of savings bank, which are incurred in the new lending process, about the allowance for bad debt loan. In particular, it analyzes the differential effects of the expenses of the savings bank, of which the BIS ratio fell below 7 % and is received the advice of the management improvement from the Financial Supervisory Service. As a result of empirical analysis, firstly, I find that the deferred loan incidental expenses have a positive effect on the allowance for bad debts. Secondly, the positive effect is differentially decreased in the saving banks of less than 7 % of the BIS ratio. Thirdly, those effects continue to be until the next year. Forthly, as the additional analysis separating two groups which consists of a group of the incidental expenses and the other group of the incidental revenues, results are consistent with the main findings only in the group with the incidental expense. In the group with the incidental revenues, the positive effect on the allowance is disappeared and the differential effect on the banks of less than 7% are positive. These results give a suggestion about any window dressing settlements on the allowance among the savings bank of less than 7 % using incidental expenses.