Impact On Loan Provision Reserve By New Chinese Accounting Standard

Credit risk is the major risk for commercial banks, and loan provision is one of the important safeguard for credit risk resistance. In the progress of China’s Market Economy, loan provision policies has also been improved and optimized. In particular, after experienced the financial crisis of Southeast Asia and the United States sub-loan crisis, the authorities pay more and more attention on the important function of loan provision.Since2008, all commercial banks in China should adopt of New Chinese Accounting Standards (NCAS) issued by MOF in February2006. With this background, this paper mainly focus on the following issue:loan provision treatment. It is considered that due to the great difference between NCAS No.22and CBRC’s loan provision regulations as well as its complexity, there exists some barriers for small and medium sized commercial banks to adopt NCAS No.22.The implementation of NCAS achieved target of to be in line with international accounting standards, however, there are a lot of difficulties to encounter during the conversion process. Comparison of NCAS with old Accounting Policy, there are significant differences on principle and measures. Due to the limitation of data and information system, the shortage of professionals as well as the rigidity different requirement from CBRC, the effectiveness of NCAS implementation is not good. Based on the above analysis, it is suggested as follows,1) Regulators should set up detailed guideline for commercial banks easy processing, and try to unify loan provision rules to cut down banks operational cost,2) Commercial banks should adapt to NCAS as well as improve internal credit risk management by taking actions on accountant training and management information system development,3) Supervisor should enhance the supervise on commercial banks’implementation by seeking support from CPA annual audit.