Study On The Loan Loss Provision System Of China's Commercial Banks

Loan loss provision is the first line of defense for commercial banks to resist the credit risk loss, whether its provision is adequate or not directly impacts the coverage on loss, and also influences the capacity of capital to absorb unexpected losses. In particular, the inadequacy of loan loss provisions during economic downturn would lead to erosion of bank capital, resulting in increased pressure on capital constraints, which sharpens the credit crunch of commercial banks, causes more adverse effect to the economy.This article comprehensively studies the history and the present of China's loan loss provision system, with the combination of international loan loss provision research, including the loan loss provision, the accounting treatment, bad debts written off and the tax treatment, etc. The focus of this study is on the way of provision for loan loss provisions,.China's system of loan loss provisions revolves from the original system of loan loss provision in fixed proportion with loan balance, and the system based on different risk categories according to five-category loan classification, to the listed bank loan loss provision in the way of future cash flow under the new accounting standards.After studying the relevant articles of policy and theory, this article gives an empirical analysis in the present situation of China's listed banks loan loss provision. The empirical Analysis mainly uses financial analysis and quantitative analysis. Quantitative analysis studies the factors that influence the behavior of commercial bank loan loss provision through the establishment of panel data model. The results show that state-owned commercial banks' loan loss provision has smaller pro-cyclical tendencies compared with other commercial banks; in the mean time, China's commercial banks in general have a weak forward looking in terms of loan loss provision methods.Finally, this article provides policy proposals for defects of China's current loan loss provision system, with the concern of accounting treatment, loan loss write-off, tax treatment and regulatory system, etc. This is significant for China's commercial banks to improve risk-resisting ability, enhance its international competitiveness, as well as the stability of the banking sector as a whole.