Research Of Loan Loss Provision Decision-making Efficiency In The Commercial Banks

Loan Loss Provision (Loan Loss Provision, LLP) is a commercial bank loan extracted to resist risks and to be used for compensating the defaulted loans, which is based on the evaluation and assessment of the loan loss to cope with the future potential of bank capital requirements. Nowadays it is of great significance to the stable operation of Banks. Since2008the US subprime mortgage crisis, the risk management of commercial Banks to the attention of the countries all over the world, and to prepare as a bank loan losses against the risk of the important measures, also more and more get the attention of experts and scholars.The efficiency of loan loss provision decision refers to the effectiveness of decision-making to prepare for bank loan losses by the bank manager in the existing level of technology, to improve the quality of assets and maximum cover credit losses and control credit risk, namely the bank managers actual provision for loan losses to close to its optimal frontier. When bank loan loss provisions are not sufficient, it will result in a lower decision-making efficiency for loan loss reserve, which is difficult to accurately reflect the actual situation of the bank’s asset quality, reduce the quality of the financial statements as well as difficult to play its proper risk identification and control, thereby affecting the stable operation of the bank. It will not also make investors and regulators to evaluate the bank credit management policy scientifically and comprehensively. Insufficient provision for loan losses banks will produce erosion of bank capital. This reflects the importance of loan loss reserves, if bankers can predict the risk of loans and losses accurately and take adequate loan loss reserves, it can reduce the impact and enhance the ability of commercial banks to resist risks. Based on this, This article empirically analysis of the efficiency of Chinese commercial banks provision for loan losses and its influencing factors by selecting the A shares of16listed commercial banks as the research object and the sample period2007-2013, with the use of stochastic frontier production function model.This paper is divided into six parts. In the introduction of the first part introduces the research background, significance, research innovation and research methods; The second part mainly reviews the LLP-related papers from reseach of LLP decision-making efficiency, methods of LLP decision-making, motivates of LLP decision-making, LLP procyclicality, and summarizes the domestic and foreign existing research conclusions; The third part of this article reviews the three phases of the system development process of LLP, and reviews the relevant policies and regulations currently in force; The fourth part is the analysis of the status quo of China’s listed commercial Banks LLP, mainly through the non-performing loan ratio, provision coverage and loan provisioning rate of these three indicators; The fifth part is the empirical analysis of this article. In this section firstly introduces the concept of stochastic frontier model, and then empirically analyze the relative efficiency of the loan loss provision between commercial bank and its influencing factors, from the building of concrete model, data collection, model estimation and the result analysis, the study found that the efficiency of the situation of non-decision-making for loan losses in China’s listed commercial banks does exist, and provision for the efficiency of state-owned banks and joint-stock banks are similar, but higher than that of the city commercial banks. The scale of banks, level of management and regulators behavior have significant positive impacts on the decision-making efficiency, besides, the efficiency of loan loss provision decision shows some pro-cyclicality. The sixth part is the conclusion and outlook, and the section summarizes the research conclusion of this article, in view of the problems found, puts forward relevant Suggestions, and according to the limitations of this paper for the future research are prospected.