A Study On The System Of Loan Loss Of Commercial Banks In China

Loan loss provision is basic measure of commercial banks for hedging against loan risk. Legitimate creation of provision could hedge against loss from credit risk under the circumstances of high degree liquidity. But it’s hard for regulators, accounting authorities and commercial banks that how to create provision legitimately. China has set up bad debts reserve system since1986, and it spent about30years in building up loan loss provisions system from scratch and perfecting gradually with the development of financial system. Meantime, loan loss provisions of Chinese financial institutions have increased year by year and these institutions have been more resilient.The emphasis of this paper is analyzing the impacts of vicissitudes of Chinese loan loss provisions on the base of more than20sets of systems from it’s established. It attempts to analyze positive and negative effects of this system from positive-comparative analysis and trend analysis according to data from2010-June,2014of five state-owned commercial banks. The paper also introduce and analyze Spanish dynamic provision system, American Four-category assets quality classification and Japanese inspection&evaluation system while advances some experience which is worth learning. It points to the inadequacies of Chinese loan loss provision.In addition, the paper provides suggestions in affirming relevant parameters scientifically, setting ceiling of provision, providing actual rate of provision creation, formulating differential loan loss provision system etc.Finally, hope the study and analysis of all the illustration would be helpful for Chinese loan loss provision system.