Thispaper examines the phenomenon whereby state-owned banksin China tend to notonly reducetheirnon-performingloans(NPLs)throughacceptingsettled assets,butalsoovervalue and delay liquidating settled assets. Theresults ...Thispaper examines the phenomenon whereby state-owned banksin China tend to notonly reducetheirnon-performingloans(NPLs)throughacceptingsettled assets,butalsoovervalue and delay liquidating settled assets. Theresults implythatthe state-owned banksexhibitan obvious book loss aversion behavior when disposing their NPLs, i.e. they minimize book loss and hide real credit loss by settling their NPLs with overvalued assets. This paper suggests that this results mainly from improper regulations, weak financial strength, and over-restrictions on NPL disposition. Since introducing a valuation allowance on settled assets, as suggested by the regulatory body, will notproduce the desired effect, this paper proposesthata performance measurementand penaltymechanism basedon non-performing assets instead of NPLs will change the banks’ attitude towards NPL-asset settlement. In addition, a new internal control method governing the entire process from settlement to liquidation isalso suggested.展开更多
文摘Thispaper examines the phenomenon whereby state-owned banksin China tend to notonly reducetheirnon-performingloans(NPLs)throughacceptingsettled assets,butalsoovervalue and delay liquidating settled assets. Theresults implythatthe state-owned banksexhibitan obvious book loss aversion behavior when disposing their NPLs, i.e. they minimize book loss and hide real credit loss by settling their NPLs with overvalued assets. This paper suggests that this results mainly from improper regulations, weak financial strength, and over-restrictions on NPL disposition. Since introducing a valuation allowance on settled assets, as suggested by the regulatory body, will notproduce the desired effect, this paper proposesthata performance measurementand penaltymechanism basedon non-performing assets instead of NPLs will change the banks’ attitude towards NPL-asset settlement. In addition, a new internal control method governing the entire process from settlement to liquidation isalso suggested.
