Research On The Impairment Of Commercial Bank Loans Under The Expected Loss Model

As the most important financial institution in the financial market,commercial banks play a very important role in stabilizing economic development.Due to the constraints of the Basel Agreement,commercial banks must maintain sufficient capital adequacy ratio and meet the goal of maximizing profits at the same time.As a result,the accrual behavior of commercial bank loan impairment losses has certain procyclical characteristics.This procyclical characteristic may have a negative impact on overall economic development.The loan impairment loss accrued by commercial banks reflects the expected loss or average loss of the loan,which is the loss suffered by the debtor.Whether the bank's loan impairment loss can accurately cover the expected loss is of great significance to the bank's credit risk management.Over-accounting will affect the bank's profit surplus and capital utilization efficiency.Not enough has no big problem in the short term,but if the credit risk concentrated outbreak,concentrated impairment loss of loans will not only affect the management of commercial banks,and may even have a certain degree of impact on the social economy..In March 2017,China's ministry of finance revised the no.22 standard for financial instruments.The expected loss model with high international appeal is adopted to replace the old loss model,as to accrue the impairment losses of financial assets such as loans.The new impairment criterion takes into account the future cash flow within 12 months or the whole duration,and divides the change of credit quality and the credit risk status of assets into three stages,and calculates the expected loss and interest income of financial assets under different default risks in stages.The new criterion can effectively solve the procyclicality of the old criterion and the cliff effect of asset impairment.At present,China's commercial Banks listed with A+H shares have adopted the expected loss model to confirm loan impairment since January 1,2018.The new model is different from the old model in the confirmation and measurement of impairment loss As the most important intermediary institution in the financial market,commercial Banks' daily transactions involve the confirmation and measurement of a large number of financial instruments,and credit assets account for more than 50% of financial assets.Therefore,the change ratio of loan impairment model will inevitably have an important impact on the operation and management of commercial Banks.This paper explores the way in which the loan impairment of commercial banks in China will be depreciated over the next five years.This paper can be concluded that the implementation of the expected loss model is beneficial to economic development and regulatory requirements.It effectively alleviates the procyclical problem of loan impairment provision.Forward-looking loan impairment provision can effectively reflect the dynamic changes of credit risk and better help commercial banks manage credit risk.At the same time,it puts forward the challenges faced by commercial banks in applying the expected credit loss model and the suggestions for meeting the challenges.