The Cycle Characteristics And Management Research Of Chinese Commercial Bank’s Loan Loss Provision

The subprime financial crisis has triggered a new round of thinking about theprocyclicality of the loan loss provisions.Regulatory requirements lead to procyclicalre-enters the national researchers and policy maker’s horizons.In the event of loanlosses,Provision for loan loss problems is not enough to offset the loan loss reserve,Soit can only use the bank’s profits or the bank’s capital to make up.If the bank’s capitaltherefore subjects to severe erosion,it will lead the bank’s capital crisis,therebycausing the bank’s bankruptcy.China’s banking regulatory requires the estabilish ofdynamic adjustment of loan loss reserve system.The Basel Committee proposed acapital of counter-cyclical.If we can establish the prospective system of loan lossprovisions,it can smooth the cyclical fluctuations of loan losses and help promotestable economics development.Current study of loan loss provision stays in the theoretical analysis,lacks theempirical research perspective to study cyclical nature of loan loss provisions.In thispaper,based on the researches of domestic and foreign scholars,it researches onChina’s current16listed banks.It analyzes the periodic characteristics of commercialbank’s loan loss provision using the balanced panel data of the latest Chinese listedbanks.In this paper,16listed commercial banks divided into state-owned joint-stockcommercial banks、national joint-stock commercial banks、City Commercial Banks.Itcompares the results based on the research on loan loss preparation period accrualprospective or prospective and the relation with the economic cycle.When performinga comparative analysis,due to the different types of banking business decisions,itdraws a conclusion with the evolution of each bank loan loss provision system and theimplementation of discounted cash flow time.The paper finds that the loan loss provisions is based on historical or currentinformation,showing pro-cyclical characteristics.Loan loss provisions exist profitsmoothing behavior and it can ease the procyclical to a certain extent.Loan lossprovisions positively correlated with risk exposures.In view of the16listedcommercial banks respectively analysis, loan loss provisions of Bank of China,Agricultural Bank of China, China Construction Bank, China Merchants Bank, ChinaEverbright Bank presents a prospective character,city commercial bank’s loan loss provision procyclicality is the most obvious.Future discounted cash flow method withrespect to the five grade classification plan formulation is more forward-looking,discounted cash flow method is more scientific.At the operational level, dynamic provisioning system is an introducedcounter-cyclical tool under macro-prudential regulatory framework.Under thesystem,he behavior of the bank’s provision has the counter-cyclical character.Themore provision for economic prosperity, the less allowance for recession and it canalleviate the pro-cyclical effects.This paper focuses on the analysis of the dynamicreserve system of Spain.Under the system,Although dynamic provisioning rules cannot eliminate pro-cyclical behavior of commercial banks,but it is a better solution tothe adequacy of the provision.It improve the buffering capacity of the banking systemagainst risks.This paper also analyses advantages of dynamic provisioning of Spainand the reference to china.