For Loan Losses Reserve IFRS9 Impact Analysis Research

In recent years, the development state of the banks has become the main focus among the public attention, and the public listing banks have also become most dynamic part of the banking industry in China. In the outbreak of the global financial crisis in 2008, this is not only the new challenges for financial supervision but also the questions of financial instruments accounting standards on measurement methods. Subsequently, The Basel Committee on Banking Supervision proposes the requirement about the leverage ratio and excess capital, which increase the supervision on the off-balance sheet business and capital adequacy ratio. International Accounting Standards Board(IASB) requires them to simplify the fair value measurement and use Expected Loss Model to measure depreciation. Nov 12,2009 the IASB issued International Financial Reporting Standard 9—Financial instruments(IFRS9), and the guidelines will be formally implemented in 2013 but encourage to adopt in advance. The most fundamental changes of this guideline is the evaluation model of financial assets depreciation: from incurred loss model to expected loss model, and expected loss model is used to recognized the depreciation in value. This advice reflected that the international accounting standard board gives up the past measurement model—incurred loss model to identify the loan loss provisions and adopts the so-called expected loss model to do it.Loan loss provisions extracted by commercial banks are to cover the loan loss that was brought by breach of contract, to meet the potential requirement of capital in future and to effectively guide against the bank credit risk and supply bank capital. After the IFRS9, the new model would be affected the credit loss provisions, which has become the common focus. Many scholars believe that the new model of loan loss provisions-expected loss model would effectively alleviate the pro-cyclicality that caused by the incurred loss model and then lower the probability of volatility of the profits. So, this paper attempts an empirical study on this topic. This article intends to select the pre-tax profits of listed banks as the empirical subject in the loan loss provisions depreciations, in order to analyze the volatility of outstanding achievement and degree of average level.From the angle of theoretical analysis, this view may be supported. This approach will affect the fluctuation of profit in the main banks. The most important aim that the expected loss model is used in this aspect is to reduce pro-cyclical and volatility of the profits of listed banks by the transformation of provision for loan losses. However, considering the macroeconomic environment and a wide range of uncertain, the desired results in empirical research are still unknown. With the development of financial instruments on the capital market, if the expected loss model can not achieve the desire effect, then listed bank's future performance may increase the magnitude of the amount and the profit volatility may also increase and vice versa. In the view of this aspect, the paper could attempt to an empirical study on this topic and try to provide research basis.Firstly, this paper provides the background of this research and currently this incurred loss model has obvious pro-cyclicality. According to the exposure draft, the expected loss model in IFRS9 whether can effectively alleviate this phenomenon in the near future, which is the research core question in this article. In the second part, its is about the empirical study and normative research in financial tools accounting standards and the loan losses reserve from the view point of foreign and domestic scholar. These main ideas and research method provide reference and enlightenment for this research about impact of loan loss reserve in the next part. In the final part of this section, this article also summaries the contents of IFRS9 revision, which undoubtedly put forward a new challenge and point out the direction. In the third part, beginning with the concept of financial instruments and loan loss provisions, it is the qualitative analysis between the financial instruments standards and loan loss provisions. In this part, it is main content about the difference between IAS39,IFRS9 and Base II on the loan loss provisions. And in the next, it is the empirical analysis that financial instrument affects the loan loss provisions, and this analysis is based on the historical data of listed banks. This is the essential part, because we use the main content of the expected loss model to adjust the pre-tax profit based on the incurred loss model, and then to compare the volatility of profit and mean between two sets of data. In this paper, the compared samples T test on the indexes can be tested, and the tested result shows that the adjusted pre-profit increases volatility, but the average level is no significant change. Therefore, the expected loss model increases possibility of profit volatility and has nearly no effect on the mean of profit. In the next few years, we can expect that the financial instrument will be fast developed, so the listed banks performance would be heavy affected. Finally, we summarize the contents of the mentioned content, indicate the shortcomings of this article and put forward the rationalized advices about the mentioned the problem. Although expected loss model has not achieved the expected aims, it has the positive and optimized influence on the incurred loss model. In the final part, the article also shows some other advices such as strengthening regulatory risk management, drawing lessons from foreign languages, combining the national status on self and establishing the capital market risk provision and so on.