Credit Risk Rating And Commercial Bank Credit Risk Management

Credit risk is one of the most essential risks in financial institution. Credit risk management has evolved dramatically over the last 20 years in response to the speed-up of globalization of economy and finance. The management system of credit risk develops quickly and many kinds of new technique are used to analyze the credit risk in some developed countries .In China the simple technique is still used to manage the credit, which is not suitable for the fast-developing commercial bank. In the credit management system the key problem is the credit rating. The new Basel Accord issued in 2002 requires the bank to establish the credit rating system firstly.The main motivation of this paper is to give a systematic introduction to the latest research result in credit risk management and the management situation in the active banks, compare the practice in the Chinese banks, and propose to build the credit rating system first.Based on the data set of 1900 loans this paper builds three models of clustering, logistic regression and discrimination analysis to classify the credit risk rate. The empirical test result shows that the logistic regression model, the clustering model, and the discrimination analysis model can predict the credit rate with the overall accuracy percentage of 83.4%, 72.05%, and 68.14%, respectively. The three models all predict the best and the worst sample data more correctly than the middle three kinds of sample data. Thus, the models built in this paper can be used in the practice of the Chinese commercial banks. Based on the models this paper also designs the credit rating and the credit management system for the Chinese commercial banksThis paper differs from other research about this topic as shown below:(1) The number of the sample data is 1900 loans which is much bigger compared with other research about the same topic. (2) The loans are all more than 10 million RMB and include all the industries. The data can represent the true situation of the loans since the banks evaluate these loans more strictly and the management in the enterprises borrowing these loans is more standard. (3) This paper is based on the practice of the Chinese commercial banks in choosing the variables and the data, building the forecasting models, designing the credit rating and managing system. Thus, this paper combines the practice with the theory.