China Financial Non-Performing Loans Disposal Decision-making Model Research

The 2007 year U.S. subprime crisis evolving into an economic crisis and the 1997 Asian financial crisis, and other facts show that the financial non-performing loans (NPLs) problem was one of the most important source risk of financial markets especially the banking sector. The large number of NPLs accumulated which impacted the stability of financial markets, increased the vulnerability of financial markets, but also had constraints on the health of the financial market rapid and enormous development. How to effectively deal with financial NPLs to maximize the recovery of NPLs for China's financial industry? It was the key to change the status quo of "NPLs was large, but the quality was not high". As a result, the financial NPLs problem has become the focus of the financial institutions and academic, and was one of the key issues of disposing NPLs theory.Based on the above analysis of the facts, from a microscopic point of view, this paper have done some research on China's financial NPLs disposal optimal decision-making theory and model. This paper was divided into seven chapters. The first chapter was the paper's introduction. In this chapter, the paper's basis, technology and content were analyzed. In the second chapter, the disposal of China's financial NPLs connotation was reviewed. The disposal of financial NPLs decision-making theory and models related to the progress and the main problems were analyzed. In the third Chapter, The shrinking mechanism of China's financial NPLs had been studied. In the Fourth and Fifth chapters, the optimal decision-making theory and model were discussed on debt-equity swap and auction disposal means, which was two of the current main China's financial NPLs means. In the sixth chapter, we discussed that the innovative Collateralized Debt Obligations (CDO) was used to disposal China's financial NPLs. The final chapter was the conclusion and prospects. The main theses of the research results were as follows:(1) Based on the game theory the financial NPLs value-shrinking framework was established.This paper analyzed the financial NPLs value-shrinking mechanism and the reasons of NPLs value-shrinking. Based on the dynamic game theory, the financial NPLs value-shrinking conduction model was established. After that, this paper simulated the financial NPLs value shrinking formation, which was significant for choosing the best time to dispose the financial NPLs in practice. (2) The debt-equity swap decision-making system for financial NPLs was constructed based on the NPLs constraints such as NPLs value change.At present, the debt-equity swap was one of main NPLs disposal means in China. It was difficult to determine the core problem of the debt-equity swap ratio. Combined with China's relevant policy and practice, this study analyzed financial NPLs determining conditions for debt-equity swap and derived the formula for calculating the ratio of debt-equity swap, and the financial NPLs debt-equity swap decision-making model was established on the NPLs constraints such as NPLs value change, which is helpful to resolve the current literatures not considering the problem of value change and Convertible debt-equity swap ratio constraints.(3) The financial NPLs auction disposal decision-making model was established from the perspective of asymmetric information.As for the defect of a greater loss of value for NPLs resulted from the enormous costs and asymmetric information for NPLs auction disposal, this study, which was to seeking NPLs to maximize the recovery as the goal, discussed the financial NPLs auction disposal decision-making theory and model, and improved the financial NPls auction theory.(4) From the point of view of assets securities, the financial NPLs decision-making theory and model was set up by using CDO.On the basis of analysis the status quo of China's financial NPLs securities disposal, according to China's actual situation, the financial NPLs CDO multi-tranche was designed. The cash flow, credit enhancement, and other key issues of the NPLs CDO's structure were analyzed. We also priced the NPLs CDO by using Monte Carlo method, which could provide a theoretical guidance and technical support for innovative disposal of the China's financial NPLs.