The impact of loan loss provisions on the firm valorisation: the case of the Tunisian banking sector

According to national authorities and international institutions, the prospects for growth of the Tunisian economy remain very encouraging. In order to maintain and further sustain this growth, the banking sector remains a major pillar. Taking into account the prominent role it has been playing in the mobilisation of savings, the financing of the economy and the preservation of the major internal and external balances for several years; it has benefitted from a particular attention. Our study addresses the issue of the evaluation of non-productive loans and their provisioning. With a sample of ten universal Tunisian banks which have been studied over a five year period, we concluded that there is no positive correlation between the provisions’ discretionary component for bad debts and the banks’ cash flow. This component is positively correlated with the market value of the banks. Insufficient provisions affect the market value of the banks and create problems which could affect the Tunisian economy.