Abstract

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Title:: Evaluation of the Implementation Effect of China’s Dynamic Provisioning

Keywords:: dynamic provisioning system; effect evaluation; countercyclicality; capital manipulation; profitsmoothing

Abstract:: In accordance with the international trend in financial supervision reform，China officially started toimplement dynamic provisioning in 2011. However，since it has been implemented for a relatively short periodof time，the system needs to be improved on the basis of sufficient investigation and research，and in particular，the effect of the implementation needs to be evaluated. This paper tries to describe the overall framework andbasic set-up of China’s dynamic provisioning system. Based on a clear description of the concept and objectivesof dynamic provisioning，the analyses of the indicator data and empirical data are applied to investigate theoverall implementation effect of dynamic provisioning. The results show that although the Chinese bankingindustry and the commercial banks selected for observation have met the basic regulatory standards of dynamicprovisioning，but the implementation of dynamic provisioning does not show a statistically significantcountercyclicality. Furthermore，some commercial banks also take the advantage of dynamic provisioningto manipulate capital and smooth profits. In this regard，this paper puts forward some policy suggestions toimprove the dynamic provisioning system by drawing on the successful international experience.