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Studies On Measurement And Management Of Credit Risk Of China's Commercial Bank

Posted on:2009-12-22Degree:DoctorType:Dissertation
Country:ChinaCandidate:B LiuFull Text:PDF
GTID:1119360272976070Subject:Quantitative Economics
Abstract/Summary:PDF Full Text Request
In the process of the socio-economic development, modern commercial banks, serving as the"Total Pivot"and"Regulator"of national economy , play a significant role in raising and financing fund, directing the flow of assets, improving the efficiency of capital and regulating the social aggregate demand. Finance is the core of modern economy, and in the meantime, banks are the pillars of modern finance which are beneficial to the stability of modern economy and finance. However, the unique nature of management in debt gives rise to the attendant risks. According to the "core principles of effective supervision of banking", which was released in September 1997 by Basle Committee on Banking Supervision, the risks confronting the banking industry can be grouped into eight kinds: credit risk, the country and transfer risk, market risk, interest rate risk, liquidity risk, operation risk, legal risk and reputation risk, among which the credit risk lead a special role. Poor management of credit risk of the country, banks and financial institutions results in serious damage to a country's economic development, harm on the interests of the most ordinary investors and pose a threat to public interest and social stability. Consequently, credit risk management has aroused general attention among banks, academics and government regulatory agencies.With the transformation of financial market environment, the innovation of commercial banking business, the diversification of market participants and transactions, as well as the development of credit derivatives, the connotation and content of credit risk has been expanded and extended. In June 2004, Basel Committee issued a "unified capital measurement and capital standards of international agreements: the framework of the amendment," that is, Basel II. The new agreement consists of three mutually reinforcing "pillars", in which the first "pillar" brought up the new standard and IRB, while the senior IRB was the ultimate goal of the implementation of the new bank agreement. The research on credit risk and financial risk has long been a hot potato, even in Western developed countries, the accuracy and efficiency of credit risk measurement remains one of the most challenging issue. Therefore, the research concerning the measurement and management of credit risk is of great academic value and practical significance.China's banking industry varies significantly with the mature market economy. During the transition period from China's planned economy to a market economy, China's state-owned bank has accumulated a large number of non-performing loans. At present, although our country has taken measures to liquidate the non-performing loans, inject capital, establish modern corporate governance structure, and list both at home and abroad for the industrial and commercial bank, the agricultural bank and the construction bank. The limited time of establishing the operating system and limited research on control and management of credit risk of China's commercial banks put our country in an unfavorable position, compared with international studies. In addition, China's accession to the WTO has brought about intense international competition. As one of the core competitiveness of China's commercial banks, the capability of credit risk management need to be urgent enhanced and strengthened.To sum up, on a basis of the advanced experience of foreign bank, combined with China's actual national conditions, this paper analyses the measurement and management of credit risk of China's commercial banks. It is of important theoretical and practical significance. The full text is divided into seven chapters, and the structure of the paper is as follows:Chapter 1 is the introduction. This chapter describes the background and significance of the research as well as innovative point.Chapter 2 illustrates the basic elements of credit risk research. In the first place, the chapter gives the definition of bank credit risk, the characteristics of credit risk, pointing out that credit risk is the major risk to the credit-based commercial banks. The management and control of credit risk in commercial banks are the primary task. Besides, this chapter demonstrates the four quantitative factors: default risk exposure, the probability of default, the loss of breaching the contract and the valid period. Finally, we illustrate the six important concepts: expected loss, unexpected loss, inadequate loss, supervision capital, economic capital and risk-adjusted capital earning.Chapter 3 outlines the literature review. First of all, the chapter summarizes the theory and empirical results in foreign countries, including Altman,Merton,Vasicek,Jarrow and Duffie and other well-known foreign research scholars. The expansion of applied research consists of default rate, default recycling rate and macro-economic cycle. Then, we conclude the domestic research, concluding the new Basel Capital Accord, the analysis and evaluation of credit risk model.In chapter 4, we supply the study on credit risk measurement model. First of all, this chapter introduces the traditional credit risk measurement model, including elements analysis, rating method, Z score model and ZETA score model; then, this chapter introduces the important structural model of credit risk measurement as well as the KMV model and Credit Metrics analysis. At last, this chapter introduces the simplified model and structural model.Chapter 5 provides empirical research on credit risk of China's commercial banks. In this chapter, we adopt the use of ST or *ST as signals as the alternative of default rate of credit risk measurement. First of all, through the annual reports of listed companies, we extract 320 samples, namely in 2006, they are 55new ST or *STs and 265has never been ST or *STs, then, we adopt the factor analysis, the typical multiple discrimination and Bayesian discrimination analysis, Logistic regression discrimination analysis and so on. Finally, the application of ANN model analysis finds greater in-sample predictability and moderate out-sample predictability.Chapter 6 consists of the measurement and management of credit risk in China's commercial banks. At first, this chapter illustrates the source of credit risk and comment on the current measurement and management method. Secondly, this chapter illustrates the new Basel Capital Agreement, the IRB and the main methods and application of RAROC. Finally, we provide a domestic portfolio example.Chapter 7 suggests the solutions to credit risk management. On the grounds of the analysis of the causes and problems, we point out that it is imperative to strengthen credit risk measurement and management in China. Then, we put forward concrete measures to strengthen credit risk measurement and management.Through the above research, we can draw conclusions as follows: 1. On a basis of the measurement of credit risk models, this paper finds that classification of traditional and modern credit risk models is not accurate by scholars. Because a lot of banks and financial institutions still utilize the traditional methods and the modern models learn a lot from traditional ways. It can be said that the credit risk measurement models and methods have a self-evolving process. In the course of development, there have been a plenty of similarities and differences in measurement models and these models bear no prominent variation.2. Through the empirical analysis, we can find that factor scoring model is not suitable for measuring China's loan default rate and multiple discriminate functions and Logistic regression model cannot reflect the true probability of default size because they are linear models. The artificial neural network model can identify in-sample companies, but to out-samples, its predictability is far from satisfactory.3. We analyzed on asset securitization products of China's commercial bank, by application of Fitch Ratings portfolio credit risk rating analysis software, and pointed out that we could determine the loan portfolio credit risks by simulation output, and that China's commercial banks must attach importance to develop measurement model of loan portfolio credit risk.4. According to the status quo of measurement and management techniques of credit risk of China's commercial banks, this paper proposes the principle of implementing of the new Basel Capital Accord, establishing credit risk portfolio model, adopting internal credit risk rating and RAROC method, which is the future direction of China's business Bank credit risk measurement and management.5. By analyzing the problems and the reasons of China's commercial banks in credit risk measurement and management in current stage, this paper points out that banks should strengthen and improve the credit risk recognition and establish a comprehensive, operational, authoritative and independent inside control system. The government should set up effective banking supervision system to actively improve our credit risk management environment.
Keywords/Search Tags:Commercial Bank, Credit Risk, Empirical Studies, Policy Recommendations
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