An analysis of loan loss provision behaviour in Chinese banking

Abstract This research investigated the loan loss provision (LLP) behaviour in Chinese commercial banks from 2011 to 2016 in detail to examine the main determinants of LLP. At the same time, variables have been divided into macro-economic factors (related to the business cycle hypothesis), non-discretionary (referred to the expected losses) and discretionary (income smoothing hypothesis, capital management hypothesis). As the conclusion shown, the LLP in Chinese commercial banks has a pro-cyclical behaviour, and banks in China use LLP to smooth income as well. Meanwhile, risk factors are another type of crucial factors that can impact LLP in China. However, no evidence supports that capital in Chinese commercial banks has been managed through LLP by bank managers