Commercial Banks' Credit Screening Institutions: Theoretical And Empirical Study

This paper studies credit screening institutions of commercial banks. As the key sector of commercial banks' lending business, credit screening embodies complex and various institutions in practice, but its focus is the allocation of the power of credit screening. The paper first studies the allocation of the power of credit screening from theoretical and empirical angle, then , studying the institution of credit screening by comparative analysis method. This paper has six chapters.The first chapter is introduction. It presents the main problems that will be studied by the paper, expatiating upon this paper's research meanings, explaining this paper's research methods, framework and originalities. The paper shows that credit screening is a component of commercial banks' internal control system, belonging to the category of operation structure. But up to now, people's research on bank governance structure lays particular stress on right structure, such as shareholders' composition, the allocation of the claim of surplus, etc. But there are few literatures studying organization and operation structure systemically and theoretically. This makes the paper has certain originality.The second chapter is material review. Based on previous materials, it analyzes in detail the concepts relevant to credit screening institutions. The paper considers that the institution of credit screening is not fully independent. It has close relationship with banks' organization structure and internal control. So, the paper has reviewed the theories of banks' organization structure, internal control and credit risk management. Then, we make a simple comment on foreign and domestic researches.The third chapter is theoretical study. The paper first applies the theory of informational economics, through the establishment of principal-agency model, analyzing the agency cost caused by information asymmetry between the principals and the agent, presenting a theoretical explanation of the separation of credit and screening. But when the bank allocates the power of credit screening, it should consider not only agency cost, but also information cost. So in the second section we add information cost into the model to deepen the first section. In the third section we add another variable, namely bank scale. We still analyze from the angle of information cost and delegation-agency cost, and conclude that as for small banks, their concentration degree of credit screening power should be reduced, not increased as big banks do. Then, the paper studies the relationship of credit screening institution and credit rationing & credit concentration, thinking that the gathering of credit screening power will intensify the effect of credit rationing and credit concentration significantly. This is also an important reason of our country SMEs' financing difficulty.The fourth chapter is empirical analysis. In the studies of credit screening power, many are theoretical analysis papers, few are empirical analysis papers. In empirical studies, there are no papers directly researching on the allocation of credit screening power. So this paper is a beneficial attempt in this research field. In the first section, we analyze the effect of allocation of credit screening power on the bank's performance, and find that the bank's allocation of credit screening power has no significant effect upon its performance. This means that the concentration of credit screening power does not always improve the bank's performance. Although the gathering of credit screening power can to some degree overcome the agent problem, reducing the agent's moral hazard and decreasing agent cost, it will increase information cost. So the allocation of credit screening power should take into account both agent cost and information cost. The following is case study. We analyze three cases. First, we study the credit screening institution of a state-owned commercial bank. To show the difference of big bank and small bank more clearly, we choosing another two Zhejiang banks for case comparison. One is a stock bank's Hangzhou branch. After the analysis of this bank's credit screening institution and its innovation course, we find that the separation of credit and screening reduces this bank's nonperformance assets rate greatly, improving its performance significantly. But this bank's credit screening model still has many problems remaining to be overcome. Such as screening efficiency should improve, the branch chief being too powerful, etc.. As a result, the head office considers seizing the branch's screening power. But whether this can resolve this bank's problems in the credit screening system and further improve its performance is yet doubtable. Another is a city bank. This bank executes business strategies different from previously analyzed stock commercial bank. It lowers credit screening power to make small enterprises more convenient. Both banks are in Zhejiang, facing the same financial environment, but using different credit screening institutions. From the angle of their performance, both are not bad. In some indexes, the city bank is even better. This confirms former point of view, that is, the concentration of credit screening power having no direct relationship with performance. It also shows practically that banks needn't chase to concentrate screening power. For big banks, they should gathering power. But for small banks, they should lower power.The fifth chapter is comparative institutional analysis. We first analyze foreign credit screening institution. From the angle of comparing modern commercial bank systems, America and Germany represent two different types. So we study American and German commercial banks' credit screening institutions. We think that American and German commercial banks' credit screening institutions have following characters: First, credit screening power is very concentrative. Head quarters have much credit screening power. Branches are mainly responsible for marketing. Secondly, they think highly of risk management, internal control and audit. The department design embodies mutual restriction relationships. The third is ensuring that information is integral and unabridged. All business information concentrates on one department. The forth is focusing on operation line. They have established matrix organization framework. The fifth is having formed scientific performance check systems. Headquarters have specific department to examine branches and special lines' performance. Then the paper studies our country's credit screening institutions. Our country's state-owned banks all take the separation of credit and screening as the orientation of credit decision innovation to accustom market competition and self development. But because of different orientation and strength of innovation, they formed different credit screening decision model. Whereas present credit screening models still have many problems, such as credit screening efficiency being very low, the information channel being blocked, the screeners having moral hazards, etc.. Then this paper compares foreign and domestic credit screening institutions. The paper shows that because of economic environment, history and system transformation, our country's commercial banks have much commonness with foreign banks in credit screening procedure and credit management organization structure, but many differences also. Chinese banks' system innovation has much to study from foreign banks. But weather we should copy foreign credit screening institution, concentrating credit screening power, is still worth discussion.The sixth chapter is conclusion. It summarizes this paper and prospects the future development of our country's credit screening institutions.