Dissolving Bad Loans And Preventing Credit Risk Of China's State-owned Commercial Banks

The weak bank system is the biggest hidden danger of macroeconomy and financial stability in China. Because of the state-owned commercial banks make the main part position of China's financial industry, the problem of their huge sum of bad loans has been paid high attention to. It is an important problem faced by China's state-owned commercial banks and governments how to eliminate the great deal of existing bad loans and control increasing credit risk by joining together the banks' exterior reform and internal reform and risk control. This dissertation tries to study the elimination of bad loans and prevention of credit risk of China's state-owned commercial banks in the transitional period by following the path of "theoretical analysis——empirical verification——policy suggestion" and combining many analysis methods. The main contents and conclusions are as follows: 1) The author believes that the differences between China's state-owned commercial banks and international advanced banks in bad loans and competition ability come from technology, institutions and operating mechanism. Exactly based on this view, this paper puts forward that the more important thing is to establish a whole set of banks' credit risk control system besides establishing the Asset Management Companies to dissolve the bad loans. The author thinks that we should make use of the advanced financial techniques, tools and measuring methods, establish the modern commercial bank system, enhance the power of regulation and control of government, especially on the financial market, in order to control the increasing credit risk efficiently. 2) This paper evaluates the main management methods of the four Asset Management Companies, and points out the main management methods of the Asset Management Companies are inefficient because of the institutional flaws. The author thinks the assets securitization is a kind of effective method to dissolve the bad loans, but it should be established on the sound financial market. On the basis of analysis on using the foreign reserve to complement the banks' capital adequency rate, the author points out we should look for other methods. 3) When investigates the born mechanism of bad loans of China's state-owned commercial banks, after the theoretical analysis, the author makes regression analysis between the bad loans and the representative indexes that evaluate the banks' competition ability from the angle of promoting the competition ability of the state-owned commercial banks, in order to look for the most effective factors to lower the bad loans' rate. The analysis result shows that the share of the state-owned capital in banks is the most significant factor to influent the bad loans' rate, the next in order are capital adequacy rate, bad loans' reserve rate and stuff number of banks. According to the regression result, the paper draws an important conclusion: The share capital system reform of the state-owned commercial banks is one of the most effective paths to lower the bad loans' rate and promote their competition ability. The measures of the share capital system reform should include the ownership structural reform, the governer structural reform and the reducement of institutes and stuff. 4) About setting up the macro-controling mechanism against to the credit risk of state-owned commercial banks, in order to study the government's function and roles played on the credit risk preventing, on the condition of that regional financial data is limited and small sample size can be selected, this paper studies the China's regional financial marketization degree via the target and contribution analysis by the Grey Theory because which is particularly effective in case of inadequate data and uncertainty trends and has achieved success in many fields. Based on the analysis the paper draws three conclusions: Firstly, China's financial industry has developed unbalancedly not only in the financial structure, but also in the different regions. Secondly, the state-owned ownership reform of the banks is imperative. Thirdly, the mixed management among the financial institutes is very significant to construct a valid and competitive financial market. On the basis of these three conclusions, the author thinks that in the current period in China, it is necessary that government strengthen the macroeconomic regulation and supervision on the financial institutes, and the efficient financial market should be established; at the same time, the author also points out the government should adjust the scope and means of regulation and supervision, which is moderate and mainly carried out by the means of economic or law. At last, the paper investigates the means, contents and reform directions of macroeconomic regulation and financial supervision when against the credit risk.