Study On Early Warning And Mitigation Of Credit Risk Of Commercial Banks: An Angel Of View Of Enterprise Risk Management

Promoted by BCBS, COSO, IASC and other international organizations, commercial banks all over the world are implementing the Enterprise Risk Management (ERM) in the ascendant, which becomes the mainstream. Currently, in the process of building ERM system, credit risk is the most major risk categories of commercial Banks in China, while the risk early warning and risk mitigation are the weakest critical-links. This article standing on the side of commercial banks, interpreting from the perspective of ERM, selecting credit risk management in corporation as study area, and choosing the credit risk early warning and risk mitigation as research subjects, not only systematically integrates the ERM, credit risk early warning principle and credit risk mitigation tools and other theoretical proposition, but also puts forward the useful early warning models of credit risk and internal evaluation models of collaterals, combined with practical needs of commercial banks in China, and applies to the practice of commercial banks'credit operations, in order to make a preliminary research for improving the effectiveness of credit risk management as well as ERM system of commercial banks in China.Chapter 1:Introduction. It introduces the research background, significance, ideas and methodologies, as well as defines the relevant concept, focusing on reviewing the domestic and foreign research literature. Recent years, under the background of the rapid development of commercial banking, urgent need for upgrading management and the increasing regulation, it is obviously necessary to radically seek the oringin of the theory on ERM, credit risk early warning, credit risk mitigation and etc. Therefore, the author utilizes the practice-oriented guide, integrated theory compare, history deduction, abstract induction and other methodologies, by constructing models, development systems and empirical research, to complete the research process.Chapter 2 analyzes the developing trend of modern risk management as well as the Inspiration and influence for commercial banks of China. The article uses the five-star model to comparatively analyze the three representative international organizations, which promote the modern risk management during the recent thirty years and finds that the latest achievements in recent years are all about ERM. It is a useful lesson for us who are rapidly promoting the reform of the risk management, and teaches us to base on status, catch up and attempt to implement the ERM. In the current building process of ERM, one of the key issues is to establish the suitable and effective credit risk early warning and risk mitigation models, tools and systems for our country and every bank.Chapter 3 begins to look for credit risk early warning models, which suite Chinese enterprises and which are useful for commercial banks of China. By introducing the similarities and differences of modern credit risk early warning models that are most widely used abroad so far and the most representative, focusing on the limitations of the application by enterprises and banks of China, this article conclude that the modern models based on reliable macro and micro data can not be directly used by our banks to predict the credit risk on corporations. Based on those face, combined with reality, learnt from modeling ideas and techniques mentioned before, this article proposes the C & B model that based on the business affiliations and credit behavior's early warning. Meanwhile, this article emphasizes on demonstrating the relevant identification, target building and algorithm selection. Finally it analyzes its prospects in China by the SWOT analysis.Chapter 4 empirically tests and analyzes the C & B model, which based on the business affiliations and credit behavior, by a real and large bank of China for example. First of all, it briefly discusses the main modeling process, including data preparation, statistical test, index selection, parameter estimation, model score and other important steps. Next, it analyzes the modeling results of data from December 2007 to December 2008 and discusses the output from multidimensional aspects. Finally, taken risk event of SVA Group for example, it applies the model to a more detailed real case.Chapter 5 begins on a general analysis of credit risk mitigation. Above all, based on the information economics and the credit rationing theory, it makes a comprehensive analysis about the basic nature, function, role and the conduction mechanism of credit risk mitigation tools. Next, based on the most complete as well as most complex framework, Basel II Accord, this article analyzes the similarities and differences of credit risk mitigation tools under Standard Approach, Foundation Internal Rating Approach and Advanced Internal Rating Approach. Finally, it systematically analyzes the residual risks and additional risks.of credit risk mitigation tools when they mitigate the risks.Chapter 6 takes collateral as an example to discuss the Credit Risk Mitigation Tools Valuation Model, in order to address the key problems. First, the author summarizes the special requirements of commercial banks'internal assessment for collateral value by comparing the principles, characteristics and requirements between external and internal assessment. Next, based on the standard methods of external assessment and the requirements of the internal assessment, the article proposes a suitable and simple collateral value revaluation models for commercial banks in China, including 8 kinds of assessment methods and 14 formulas. Then, it studies a number of key issues for the application of model, including the collateral standard classification, assessment methodologies selection, model tips, and information system designing. Last but not least, it gives a detailed revaluation model case of real estate collateral, which is quite common.Chapter 7 contains the summary of the full text and future prospects of further research.