Formation of Allowance for Credit Losses (AFCL): Credit Risk Mitigation or Earnings Management in Village Credit Institution (LPD)

DOI

10.2991/978-94-6239-809-2_21How to use a DOI?

Keywords

Allowance for Credit Losses; Credit Risk Mitigation; Earnings Management; Village Credit Institution

Abstract

This study examines whether the formation of Allowance for Credit Losses (AFCL) in Village Credit Institutions (LPDs) primarily reflects credit-risk mitigation or provides discretion for earnings management. A qualitative multiple-case study was conducted in six LPDs in Badung Regency, involving eight purposively selected informants representing management, finance, credit operations, and supervision. Data from semi-structured interviews and institutional documents were analyzed through iterative coding and thematic analysis. The findings identify three AFCL formation patterns: prudential, mixed, and situational earnings management. Regulation and deteriorating credit quality generally anchor AFCL as a risk buffer; however, institutional capacity, managerial judgment over collectibility and recognition timing, profit targets, customary-village contributions, community trust, and uneven supervision can redirect that discretion. The study proposes an institutionally embedded provisioning model in which socio-cultural legitimacy pressures interact with agency incentives and accounting-policy choices. This extends credit-loss allowance research beyond formal banks and capital-market incentives by showing that discretion in community-based financial institutions may be opportunistic, prudential, or socially adaptive. The results imply that stronger documentation, transparent collectibility review, and proportionate supervision are necessary to preserve AFCL’s prudential function.

Copyright

© 2026 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Dewa Ayu Mas Putriari Nusantari
AU  - Ni Ketut Nadila Suryasari
AU  - Ni Ketut Utami Dewi
AU  - I Putu Gede Sudiatmika
PY  - 2026
DA  - 2026/10/24
TI  - Formation of Allowance for Credit Losses (AFCL): Credit Risk Mitigation or Earnings Management in Village Credit Institution (LPD)
BT  - Proceedings of the International Conference on Sustainable Green Tourism Applied Science - Social Applied Science 2026 (ICoSTAS-SAS 2026)
PB  - Atlantis Press
SP  - 205
EP  - 215
SN  - 2352-5398
UR  - https://doi.org/10.2991/978-94-6239-809-2_21
DO  - 10.2991/978-94-6239-809-2_21
ID  - Nusantari2026
ER  -