ECL adoption without capital erosion: anticipatory preparation and regulatory architecture in Chinese banks

Abstract

The adoption of expected credit loss (ECL) accounting under IFRS 9 eroded regulatory capital buffers in European banking systems, yet Chinese banks subject to the equivalent Chinese Accounting Standard 22 (CAS 22) did not exhibit this pattern. We propose and test the preparation hypothesis: banks proactively accumulated capital during 2016–2017 in anticipation of CAS 22, absorbing the provisioning impact without the erosion observed in European cohorts. Using a panel of 42 Chinese listed banks from 2010 to 2024, we combine three complementary identification strategies (a high-frequency event study, cross-sectional capital-buffer gradients, and propensity-score-matched difference-in-differences) and find that preparation-period accumulation is statistically robust (p = 0.004) and concentrated among banks with the greatest provisioning exposure. Post-adoption capital management became markedly more persistent, consistent with a commitment effect. State-owned banks exhibited directionally stronger rebuilding than private peers, consistent with access to non-market capital channels. The capital–valuation relationship also strengthened post-adoption, consistent with improved solvency signal quality. These results show that the capital consequences of ECL reform depend on the regulatory architecture surrounding implementation rather than on the accounting change itself.