A Study On The Practice Of Loan Risk Management For Small & Medium Enterprise Bank

Small and Medium Enterprise Banking is a specialized sector that offers financial services to small and medium size enterprises.The scale of their services are on a par with Commercial Banks.Not only do they require help from other credit guarantee institotions to share some of the risks,most of their customers are financially harder and less technologically advanced than small and medium enterprises. Furthermore,they are also being pressured by the globalization and liberalization of the banking industry;and their best strategy is to adapt to upcoming trends and embrace the new era of finance.First and foremost,the new Basel Capital Accord(BaselⅡ) is the unified international standard for all banks around the world. However different the dates of compliance may be for every country, they all fall within the next few years.The standard itself focuses primarily on managing credit risk,followed by operational risk and market risk.Once the primary risk has been well-managed, secondary risks are no longer a difficult issue;therefore this article begins with a discussion on BaselⅡand Credit Risk Models.Not only do credit risk models provide a useful guideline for lending decisions,they are also the key for creating shareholder value; hence the credit risk models need to be revised and tested for effectiveness regularly.Credit rating systems are also important for credit risk evaluation;through quantitative and qualitative analyses they generate credit ratings for lending decisions.These will be the tools that provide the useful statistics for future risk quantification and adjustment(the link between internal and external ratings is especially important)In a mechanism management loans for Small and Medium Enterprise Bank which include credit ratings,credit risk models, economic profit,and risk-adjusted return on capital is to be risk assessment.This article will also cover the workflow and management of the loan process,including stages such as credit inquiry,approval,review,maximizing sales and marketing revenue……as well as the management of assets,risk and information technology.Therefore we will put to use Gyratory Management Technique to conform workflow and management. And so as the empirical management loans divide into three levels: there are consummer finance,crdit guarantee fund and loans assessment to analyzePotential losses to a bank can be categorized into expected losses, unexpected losses,and extraordinary losses.Expected losses are charged off against provision for doubtful debts.Economic Capital is calculated based on the unexpected loss multiples within the confined confidence intervals;unexpected losses are charged off against equity.Under Risk-Adjusted Performance Measurement,the Risk-Adjusted Return on Capital is defined as:The Risk-Adjusted Return on Capital is calculated by placing Risk-Adjusted Return as the numerator,and Economic Capital as the denominator.This can be viewed as an internal model for a bank(both market risk and operating risk can be evaluated at the same time), needless to say that a successful implementation of the internal model depends on the bank's ability to collect its key data.However difficult or costly this task may be,it is not impossible.Once the techniques of risk quantification and adjustment have been well-mastered, not only does the bank understand its current risk level,it will also have taken one giant step towards establishing an Internal Ratings Based Approach.