Researches On Determinants Of The Loan Loss Allowance

Loan loss allowance which is estimated the loan loss of bank to prevent the risk of loan, is premise of prudential operation of bank. Since global financial crisis of 2008, the countries of the world begin to re-survey and attach more importance to loan loss allowance, put forward higher requires of loan loss allowance constantly to guarantee prudential operation of bank and the stability of financial system.Based on the institutional and regulatory background of China, this paper uses the sample of 104 listed commercial bank firm-years from the securities market of China during 2002 to 2009 to examine the determinants of loan loss allowance. From two angles of subjective and objective influence, we classify the determinants of loan loss allowance into discretionary and nondiscretionary components. According to the results of this paper, loan loss allowance is positively related to earnings before taxes and loan loss allowance in almost all samples; loan loss allowance is not only positively related to nonperforming loan and capital adequacy ratio but also negatively related to leverage in the non-state holding commercial bank sample. That is, commercial banks are using loan loss allowance to manage earnings; besides, the non-state holding commercial banks are using loan loss allowance to manage capital and risk.Through this paper, hopefully, we can give some helpful empirical support to the constitution of the loan loss allowance policies in our country as well as empirical researches following, to recognize the influence of enforcement of loan loss allowance policies to loan loss allowance.