Research On Loan Loss Provisions Of China’s Financial Leasing Companies

Loan loss provision is a tool used by financial institutions to offset the assets loss suffered in the future. Proper accrual for loan loss provision can both correctly reflect the quality of assets and effectively prevent the risks. It is the defense before the capital is eroded by loan loss. Loan loss provision has become one of the ideal tools for macro-prudential supervision. Meanwhile, the financial leasing has become the second largest financing choice following the commercial bank credit. China’s financial leasing business is in a booming period. It expands rapidly in recent years and contributes a lot to the real economy. So it is meaningful to study the problem from this angle.This paper reviews the various theories about the loan losses provision. It summarizes the encountered difficulties and states the sequent of deviation from correct accrual for loan loss provision. Right measurement method will get the goal. The application of the loan loss provision is not long in our country, so does the research work. Therefore, differentiating was rarely mentioned. The difference between financial institutions is inevitable, so we should treat them according to their own characteristics. Through a comparative study, this paper gives the proposals to improve the provision technique especially for leasing companies based on the general methods. The leasing business and loan loss provision can both lead to the pro-cyclical effects. By using the quantitative analysis, it verifies the pro-cyclical effects from our domestic leasing companies. As a result, the dynamic provision is put forward as a solution to overcome the cyclical problem.Finally, this thesis aims at achieving sound management of provisioning. The improvement for it will help to stabilize the economy and make daily operation more prudent.