Analysis On The Validity Of Dynamic Provisioning System Of Chinese Commercial Banks

With the rapid development of financial market, Chinese banks are in line withinternational banking standards. The stable reform of bank risks management hasbeen becoming a vital topic. The new standard of Basel III provides various guidancefor developing countries like China which facing a huge financial market.China’sfinancial reform has been started since1990s. Commercial banks have witnessedprovision systems’ changing path,including its earlyestablishment, partial adjustment,essential reforms and internationalized activities. Bank loan loss provisioning hasbeen launched in developed countries for many decades,but provision coverage ratio(PCR) and provision-to-loan ratio(PTL) have become new tools for just a fewyears,accordingtoChina Banking Regulatory Commission (CBRC)’s officialwebsite.China’s newly introduced Dynamic Provisioning system is also based oninternational provision practices. China Bank regulators updated their policies sinceBasel III was launched in2010.Loan loss provisioning plays a crucial role in risks management. It serves as aimportant anti-riskhelper before bank capital arrangements. This paper sets out tocompare different provisioning systems from all over the world and it will examinethe correlations between China’s bank loan loss provision and business cycle so as tostudy the loan loss provision effectiveness in Chinese bank industry. Banks’ creditfluctuation and regulatory bugs are also considered. This paper also involvespresumptive provisioning behaviors of Chinabanks and measures ofimprovingInternal Ratings Based Approach(IRB). All above is going to have a fulldiscussion in the core charts. Finally, the author is going to draw an suggestiveconclusion and point out regulatory adjustments in the future.