Research On Evaluation Method For Loan Loss Provision Of China’s Commercial Bank

Loan loss provision is reserves for commercial banks which extracts from the current gains or profits to resist the risk of loan losses.It reflects the expected loss of the loan or the average loss,whether the provisions is adequate or not concerns the covering on the loan loss. The excessive for the provision will affect utilization efficiency of the bank’s capital.The inadequacy of the provisions will result in capital erosion on commercial bank, which will lead to the bank’s credit crunch, and the credit of commercial banks affects the macroeconomic.So,the loan loss provisions not only concerns the business of the bank, also affects the macroeconomic’s operation. Whether the evalution method for the provision is reasonable or not directly affect the accuracy of the provisions, Therefore, the evalution method for the provision is crucial.The paper first analyzes the theories and methods of the loan loss provisions,and in line with the change of the evalution method,introduces the loan loss system,existing rules in domestic and foreign banks. Followed by comparing the evalution method for the provisions used in domestic and foreign banks, as well as the expected loss model proposed by International Accounting Standards Board (IASB). On the basis of summing up the domestic status, the paper explores a system for our bank’s provisions. This article gives an analysis in the crurrent situation of the16listed banks, applying financial analysis, including comparative analysis,trend analysis and CORREL function in EXCEL relationship. The results show that:most of the listed commercial banks exist pro-cyclical effects and inaccuration on the provisions.In contrast, the worst is the five state-owned banks, Joint-stock commercial banks are slightly better, the stronger are the City commercial banks.but the City commercial banks also have a little weak forward-looking on the evaluation methods. All the three types of banks exist the same problem:high provising coverage ratio and a shortage of loan provisioning rate. The provising coverage ratio in Joint-stock banks and City commercial banks are higher,The State-owned commercial bank’s provision coverage is relatively lower, but all of them are more than200%,the level is higher than they need.This article gives improvements to evalution methods on provisions,including the discounted cash flow method in the Single withdrawal, amendment in combined allotment way. The amendment on the Single withdrawal gets on operability, to quantify the indicators which are likly to judged subjectively,In order to improve the accuracy of the Single withdrawal and minish the pro-cyclicality. As for the combination provisions,the paper gets on in the system and on the structure to modify the model. To lower the procyclicality provision and improve the accuracy.The Countermeasures expand in three aspects, including improving the applicability of the Single withdrawal and the combination provisions,exploring the expected loss model actively. This paper gives the refinement suggestions.