Research On The Application Of The Expected Loss Model In China's Commercial Banks

In the report to the 19th national congress of the communist party of China,President Xi said that socialism with Chinese characteristics has entered a new era and the financial system reform must be deepened to solve the problem of unbalanced economic development.Finance is the core of economy,while bank is the core of finance,which plays an important role in the healthy development of capital market.The previous losses model adopted by Banks has the defect of procyclicality,which fails to consider the possible future losses of financial assets and cannot objectively reflect the value of financial assets.Many scholars at home and abroad also attributed the financial inducement of the 2008 flnacial crisis to the drawbacks of the loss model.Based on this,IASB and FASB jointly issued the draft of financial instrument standards for consultation,and China's ministry of finance also issued the CAS22 standard,stipulating that the expected loss model will be implemented from January l,2008,which is an important measure of the financial system reform.This paper takes bank C,a commercial bank,as an example,combined with data report disclosure,the research report of C bank financial asset impairment model research group and related lectures about financial asset impairment from experts in the“new development of international financial reporting standards,projects,making a comparative analysis about the difference of amount of impairment provision between the loss model that has occurred and the expected loss model applied in 2017 financial statements on the basis of the existing literature and serious study for myself.It is necessary to conduct model tests by the expected loss model based on loan migration rates and financial statements in June 30,2018.In order to promote the steady development of commercial banks,this paper analyzed the impact and challenge of the implementation of the expected loss model on C bank,and puts forward countermeasures and suggestions.The first part introduces the research intention and significance of this paper,combs the domestic and foreign research literature,expounds the research ideas,research contents and research methods,and points out the research innovations points of this paper.The second chapter is concept definition and theoretical basis.lt elaborated the expected loss model impairment related theory,and then introduce the incurred loss model and the expected loss model respectively from the scope of application,the impairment provision basis,Provision point,measuring method,and the degree of disclosure five aspects.Through the comparative analysis on the advantages and disadvantages of these two models,the necessity of the expected loss model are strengthed.The third chapter introduces the case and analyzes application of the expected loss model.First,the feasibility study of the case is fully elaborated.Then the expected loss model is applied to estimate the expected credit loss of bank C,compared with the amount of impairament provision of bank C under the incurred loss model.The fourth chapter is the impact and challenge of the implementation of the expected loss model on China's commercial banks.The part applies the expected loss model based on loan migration rate as model tests for calculated result under the model specified by the new criteria(modified Basel model),then made a peer comparative analysis from three aspects including financial asset structure,asset quality and comprehensive income to discuss the influence and challenge of the expected loss model on China's commercial banks.The fifth chapter gives some suggestions on the application of expected loss model in China's commercial banks,including accounting calculation,credit evaluation,information system construction,internal control and so on.Chapter six is the conclusion and prospect.The views of the above five parts are summarized.This paper could be improved in the future with the development of the guidelines.The innovations of this paper are mainly reflected as follows:Based on the foundation of research related to latest financial asset impairment standards issued in China,this paper considers the detailed explanation of financial asset impairment model by experts in the new development project of international financial reporting standards in 2018.It has high timeliness.Second,in this paper,the case analysis method is used for innovation.The article selects representative C bank as a case study,and uses the expected loss model reserving impairment by the end of 2017th.On the basis of comparing the above calculation results with the financial data disclosed by the Shanghai stock exchange using the incurred loss model,we could analyze the influence of the expected loss model on China's commercial banks.Then according to challenges faced by commercial banks in implementing the expected loss model,this paper put forward reasonable suggestions.