Study On Provision For Bank Loan Impairment Under ECL Model

After financial crisis, countries’ attention to the financial industry, especially to banks up to an unprecedented extent. Because the stable operation of banks is not only related to the development of banks themselves, but also related to the survival of the entire banking system, the public’s confidence in the banking system and the stability of the national economy. Accurate provision for bank loan impairment is crucial to correctly evaluate bank assets and fully reflect its business status.In view of the existing financial assets impairment model has such problems as pro-cycle and cliff effects, the IASB proposed a new financial assets impairment model named expected credit loss model, and actively published draft to the world. At present, the bank’s provision for loan impairment bases on the incurred loss model, also exposes these problems. In addition, China’s accounting standards are in full convergence with international accounting standards. Therefore, it is very meaningful to study new loan impairment provision method to fix or replace the existing impairment provision method.First, on the basis of a comprehensive understanding of China’s loan loss provision system and method, the article researches the status of listed commercial banks’ loan impairment provision. Studies have shown the coordination between the current system of provision for loan impairment and regulatory policy, pro-cycle effects in existing loan impairment provision method, and insufficient application of the discounted cash flow method and other problems. Second, introduce the expected credit loss model IASB proposed, and analyze the specific application of expected loss model through a case. The results verify the expected credit loss model’s role in mitigating pro-cycle effects. It also finds that the expected credit loss model’s mitigation function is based on an accurate estimation of the model parameters, and the estimate deviation will lead to more substantial fluctuations in profits. Finally, we should be cautious to the application of expected credit loss model, and suggest listed commercial banks make preparations for the later application of the expected credit loss model.