Loan Loss Provision Analysis For PSAK 71

Banks are considered to have failed in overcoming the 2008 financial crisis because credit policies are still procyclical. The COVID-19 pandemic will cause the world’s economic decline, causing default rates to increase. Banks need to increase their prudence in lending through the implementation of PSAK 71, which was adopted from IFRS 9. The standard regulates financial instruments, including loan loss provision (LLP). PSAK 71 expands the scope of LLP, from previously using the incurred loss method to now using the expected credit loss. This study aims to analyze the difference in the value of LLP with the implementation of PSAK 71. The research design uses an event study. Data analysis used a paired sample t-test. The test results show a difference in the form of a significant increase in the value of LLP after the implementation of PSAK 71. The significant increase, especially in credit accounts, was due to the higher potential for default in times of crisis. In addition to the increase in LLP, which reduces banking profits, another problem lies in PSAK 71, which relies too much on management judgment, so that determining the value of LLP is not objective. Both of these problems can be overcome by using software so that the determination of LLP becomes more objective and does not erode capital. Banks can use their own capital to channel credit that will restore the economy.