A Study On The Application Of Expected Credit Loss Model In ZY Microfinance Company

In 2017,China’s Ministry of Finance(MOF)organized experts and scholars to substantially revise the past standards on financial instruments,and the revised new standards draw on the latest international research results to introduce the expected loss model and clearly specify the implementation time in different types of enterprises.The application of the expected loss model requires certain conditions,and the whole society needs a process to slowly accept this new thing.In order to smoothly promote the application of the expected loss model,the Ministry of Finance has given some enterprises a three-year transition period,and the full rollout will be on January 1,2021.Microfinance companies are an important part of China’s financial system,serving a large number of small and medium-sized enterprises.Focusing on the application of new financial instrument standards in the microfinance industry,studying the implementation and promotion of the expected loss model in the microfinance industry,and summarizing the conditions required and challenges faced in implementing the expected loss model in the microfinance industry can,to a certain extent,promote the improvement of loan risk management in the microfinance industry,thereby enhancing the standardization of the microfinance industry in the accounting treatment of loan impairment,fully reflecting the risk level of loans in the microfinance industry,and promoting the healthy and sustainable development of the microfinance industry.Based on the practice of applying expected loss model for loan impairment accounting treatment in ZY microfinance company,this paper adopts comparative study method and case study method,takes the basic theory related to expected loss model as the entry point,summarizes the problems faced in practice by introducing the application of expected loss model in ZY microfinance in detail,and proposes countermeasures and safeguards.From the analysis of the above issues,the paper draws the following conclusions.(1)The implementation of the expected loss model requires relatively strict conditions.(2)The expected loss model will make the impairment provisions made by the small loan industry show a stronger countercyclical effect,which can enhance the ability of small loan companies to prevent and cope with risks.(3)The existence of a higher provision coverage ratio under the expected loss model not only better meets the requirements of regulators for prudent operation,but also facilitates the establishment of a more reasonable impairment reserve,which can lead to higher asset quality.