Study On The Counter-cyclicality Of Loan Loss Provisions In China's Commercial Banks

The outbreak of the US subprime mortgage crisis has led to widespread concerns about the pro-cyclical issue of bank loan loss provisions.When loan losses occur,these loan losses can only be buffered by bank capital if the loan loss provisions are insufficient.And if the bank's capital is eroded too seriously,the bank will have the risk of bankruptcy.The crisis also revealed that it was necessary for national authorities to establish counter-cyclical regulatory tools within the framework of macro-prudential regulation.It is an important means for commercial banks to reduce operating costs and effectively prevent risks.On the one hand,it plays an important role in the daily operation of banks as a buffer for the expected loss of loans.On the other hand,,It can provide very important information on how banks evaluate credit risk.Empirical studies of Western developed economies show that the provisions for bank loan losses are clearly procyclical.The procyclical provisions mean that the credit risk is underestimated when the economy is prosperous,thus creating the conditions for credit boom and overestimating credit risk in times of recession and thus adversely affecting the development of the real economy.However,the relationship is worthy of thought in the special institutional environment of our country.In view of this,understanding the cyclical characteristics of the loan loss provisions of China's commercial banks and their differences in the different stages of the economic cycle,and exploring the deep-seated reasons has important reference value for our government to make more targeted and forward-looking macro-control policies.Based on the annual balance panel data of 25 commercial banks in China from 2005 to 2015,this paper makes a theoretical analysis and hypothesis test on the provision of loan losses of commercial banks under the fluctuation of macroeconomics.The results show that:(1)China's commercial bank loan loss preparation has a significant counter-cyclical characteristics as a whole,among which the five firms are counter-cyclical,but small and medium-sized banks and urban commercial banks show obvious procyclical characteristics;(2)The cyclical characteristics of the loan loss provisions are different in the whole cycle;(3)The pro-cyclical monetary policy implemented by the monetary authorities generally weaken the counter-cyclicality of the loan loss provisions.