Research On The Application And Influence Of Expected Loss Model On China’s Commercial Bank

In March 2017,the Ministry of Finance promulgated CAS22,which means that the expected loss model will replace the incurred loss model as a calculation method for the impairment of financial instruments.Compared with the incurred loss model,the expected loss model divides the financial instruments into three stages according to the increase degree of credit risk since the initial recognition.IFRS9 and CAS22 both deleted the threshold of the impairment that recognize impairment based on objective evidence that an impairment of a loan has occurred.According to the expected loss model,if credit risk since initial recognition has not increased significantly,12-month expected credit losses will always be recognized on the initial recognition day.If credit risk has increased significantly since initial recognition,the accounting entities should recognize life time expected losses and interest recognized on a gross basis.If credit impaired financial asset,accounting entities should recognize lifetime expected losses and interest recognized on a net basis.This paper studies the case of subsidiary bank A and adopted the expected loss model to calculate the impairment of loans of subsidiary bank A from 2012 to.2016.First,this paper divided the loans of subsidiary bank A into three stages according to the change of credit risk.Then we used KMV model calculating the average loan default rate of the listed companies in the location of subsidiary bank A.Finally,we used the average loan default rate to calculate the impairment loss of loans dividing into three stages and found the differences between the expected loss model and the incurred loss model.Through case analysis,I find that using the expected loss model will make the impairment of financial instruments to increase slightly,reduce the volatility of the impairment loss,alleviate procyclicality,and promote commercial banks to extend loans prudently.