Bank Loan Loss Reserve Accounting System

The 2007 global financial crisis has brought the banks, securities and the entire financial system grave impact and huge losses. Although the boil led to this crisis was abuse of financial derivatives, but another important reason is the supervision of banking regulator missing. In this regard, as an international regulator of the Basel Committee issued the "Baselâ…¢", "Baselâ…¢" with the "Baselâ…¡" compared to more emphasis on the quality of the bank's capital and the capacity of anti-cyclical risk. The loan loss reserve is a bank loans accounting indicators that reflected the quality and business risk, the development of loan loss reserve accounting system will help banks and their regulators for effective supervision for banks and protect the security of the global financial system, avoiding financial crisis happening again.Our loan loss reserve accounting system, from before 1988 does not provision for loan provision, to the evolution of provision in proportion, and then into a five-category classification method to the current provision of future cash flow method, we can see, China continuous improvement in the loan provision, and inadequate accounting system with international standards. However, after a study we found that the reserve system in China there are still shortcomings, In this paper, we analyzes the loan provision exists several problems. First, our current use of the loan reserve provision of future cash flow method, there are practical difficulties. Second, the existing loan provisioning approach has pro-cyclical problems. Third, the bank underestimated the risk of collateral. Fourth, the supervision of banking and accounting standards conflicts. Fifth, the accounting information disclosure of loan provision is not sound.In response to these problems, this paper presents relevant recommendations for improvement. Recommendation One, strengthening personnel professional training, improve the technical support of computer data information system, and at the time to determine the discount rate to consider non-quantitative indicators. Recommendation Two, use the dynamic provisioning model is better in the operational characteristics and reverse cycle, when determining the loan provision in the weekdays trial dynamic provisioning model, and make a comparison between the value determined by dynamic provisioning model and the future value of cash flow method to determine the amount of the reserve. Recommendation Three, establish of specialized rating agencies on a regular basis to assess the value of loan provision to conduct a comprehensive monitoring and then regularly report to the commercial banks so that banks can make right assessment of risk for the reserve provision. Recommendation Four, banking supervision department should improve, to the Ministry of Finance under the current method of future cash flows, the CBRC ought to modify regulatory requirements, such as to check the prudential in forecasts bank assets and future cash flow, the accuracy of discount rate. Uniform accounting standards and regulatory standards, reduce the burden on commercial banks and reduce the phenomenon of earnings management. Recommended five, more regulated the specific guidelines for future cash flow method. Give examples to the banks with reference to how to calculate future cash flow and the discount rate. At the same time increase the disclosure of the information content, inconsistency norms and makes accounting information more comparable.