On Evaluation And Early-Warning Of Operating Risk For Rural Credit Cooperatives

Rural credit cooperatives have shouldered the important task of supporting "agriculture, rural area and peasants". The sustainable development of rural credit cooperatives is related to the improvement of rural financial service and supporting "agriculture, rural area and peasants". At the end of 2007, rural credit cooperatives have issued agricultural loans of 1.43 trillion yuan, taking 46% of its loans of all kinds and taking 92.63% of the loans of financial institutions; the loans of rural residents have also reached 1.16 trillion yuan.With the withdrawal of national commercial banks from vast rural areas, rural credit cooperatives have become the main component of rural financial system. With the decrement of loans in rural area issued by agricultural bank of China, rural credit cooperatives have become monopoly supplier of rural credit funds, with incomparable advantage in its market share and coverage of outlets. Sticking to support agriculture, rural credit cooperatives have gained abundant national financial support. In its future development, rural credit cooperatives must combine the two aspects of management direction and profitability.With the issue of "piloting schemes for deepening reform of rural credit cooperatives" in June of 2003, this reform have been carried out on a nation wide basis with strong enforcement and achieved large breakthrough in property institution as well as business management. In the supervision mode, the main supervision functions on rural credit cooperatives are executed by China banking regulatory commission. In the organization mode, the reform designed three forms:rural cooperative banks or rural commercial banks of share-holding system, united cooperatives at the county level as primary legal person system and those cooperatives at town level and county (city) level united cooperatives as secondary legal system. The business management of rural credit cooperatives has been transferred to provincial government, with the characteristics of localization.However, compared with other financial institutions, rural credit cooperatives have disadvantages in its property rights system, market environment, policy information, asset quality and profitability, which indicated by the high risk status of the management of rural credit cooperatives. From the year 1994 to 2003, rural credit cooperatives have been in loss for 10 year, and only turn to make profit from 2004; ever since the reform in 2003, although with the improvement in risk management, important criminal cases still occur from time to time. As a consequence, it is very urgent to design a monitoring and precaution system which could reflect the system of rural credit cooperatives and the feature of operational risk, and to further construct the precaution model of operational risk.According to risk precaution theories and the particular management practice of rural credit cooperatives, this dissertation adopts methods of historical analysis, model analysis and empirical analysis. Based on constructing internal operation risk and external environment risk forecast precaution system, this dissertation evaluates the internal and external risk of rural credit cooperatives, and then design the precaution model of their internal operation risk and external environment risk. This research has important theoretical value and practical meanings regarding improving the basic theory of monitoring system of operational risk and risk of precaution in financial institutions, strengthening the risk management efficiency and precaution control capability, guaranteeing the healthy steady and sustainable development of rural credit cooperatives after the reform.This research includes contents as follows.Chapter one:introduction. This part is mainly the raise of the question, summarization of literature, goal of research and technical flowchart and so on.Chapter two:introduction of research background. This part mainly introduces the status quo of management risk of rural credit cooperatives and its development of risk precaution system briefly.The operational risk of rural credit cooperatives includes the external environmental risk and internal operation risk. On one hand, rural credit cooperatives will be influenced by external environmental systematic risk:agricultural production risk problem, rural financial economic imbalanced risk, financial structural risk problem, rural financial regional risk problem, abnormality of government behavior and so on. On the other hand, the management and development of rural credit cooperatives will encounter internal risk:the internal fragility exacerbation caused by high liability management and huge number of non-performing loans; the harm on the steadiness caused by the shortcoming of property rights; management risk caused by incompetent of rural credit cooperatives; risk in management and so on. It analyzes the developing process, developing trend and the existing problems of the precaution system of rural credit cooperatives' operational risk. Then is emphasizes that, compared with the risk precaution in common commercial banks, the risk precaution in rural credit cooperatives has their own characteristics.Chapter three:this part introduces the frame of the dissertation and the methods adopted. It mainly introduces financial risk theory and financial risk precaution theory. It also defines the key concepts in the research; it designs the logic frame of this dissertation and lays a foundation for following analysis; at last it shows research methods.Chapter four:it designs the system for operational risk forecast of rural credit cooperatives, constructing frame for the empirical research in chapter five and six, first construct indicator system of external environmental risk precaution and internal operational risk precaution. Then design of the critical value of indicators, and last give the calculating method of individual indicator and comprehensive indicator.Chapter five adopts empirical analysis to analyze the external environmental risk of rural credit cooperatives. Taking the rural financial system in Jiangsu province as the research object, it first assesses the risk of rural financial system in Jiangsu province between 1979 and 2006, then designs the macro forecasting precaution model of the external environment of rural credit cooperatives. The analysis indicates that, in the 28 years, external environmental risk is relatively large with 16 years of bad financial ecology. These 16 years have exerted significant influence on the development of rural credit cooperatives. In 1980 to 1981,1986,1995 and 1996,the instability of Jiangsu rural financial system stems from the influence of financial factors; in 1985,1987 to 1991 rural finance instability mainly comes from economy and in 1993,1994,2005 to 2006 it originates from problem of financial funds.After analysis, GDP growth in areas with primary industry, income proportion of citizens'income in city and towns, inflation rate, loan growth of financial institutions and dependence degree on national financial funds are the indicators which are very sensitive to rural financial risk. Further more, this research offers two macro precaution model. Chapter six adopts empirical analysis and carries out internal operation risk assessment of rural credit cooperatives. It concludes from research that the operation of sample rural credit cooperatives is not good with weak capability in resisting risk. The reform from secondary legal person into primary legal person of county level operatives strengthens its risk resisting capability. In spite that some primary legal persons are reformed into cooperative banks, there is no significant improvement of its risk resisting capability. Further, through cross-period analysis, the management of sample cooperatives is steady and the risk control capability is relatively large. We can forecast that the score of the internal risk assessment of the cooperatives should remain at attention level in the long time. Although capital risk, credit risk, liquidity risk and management ability risk have not been risks influencing the management of the cooperatives, management orientation and profitability risks have always been great risks in the sample cooperatives, which means the cooperatives, at the precondition of supporting agriculture, has low profitability level and the combination of supporting agriculture and gaining profit have bothered the sample cooperatives. Significant results can be gained through adopting asset abundance rate and other 10 indicators.Chapter seven:adopting the empirical research, further analyzes the internal operational risk of rural credit cooperatives. based on the analysis in chapter 4 and chapter 6, taking 66 county level rural united cooperatives which enjoy legal person status in Jiangsu province as research samples (including rural cooperative banks and rural commercial banks), this dissertation adopts respectively the panel data and cross section data to establish the risk precaution model.In panel data model, it respectively establishes T-1 year panel data forecasting model and T-2 panel data forecasting model. The result shows that, the advantage of panel data precaution model lies in its high accuracy and it conquers the shortcoming of separating time series information and cross section information; past due loan rate G23, slacken loan rate G24, non-performing loan rate G25, preparation rate of interest payable G35 and profitability per capita PROFIT have significant influence on the risk status of rural credit cooperatives. And it proves the conclusion that the cooperative which are paid attention to have large management risk.In cross section model, it uses methods of partial correlation, multi-distinguishing, Probit and Logistic to sift the internal operation risk precaution of rural credit cooperatives and finds out that slacken loan rate G24, asset profitability rate G41 and savings per capita DEPOSIT have significant influence on the operation risk of cooperatives; it eventually establishes the risk precaution model with strong explaining function focusing on these three indicators.Chapter eight:this part summarizes the whole research and raise relative policy suggestion. Based on the comprehensive analysis above, this dissertation gives pieces of suggestion as follows:formalize, intensify and give prominence to the cooperative nature of cooperatives, keeping away the management orientation risk; continue promoting financial supporting policy, boosting the sustainable development of rural credit cooperatives; perfect the legal person governance structure of the cooperatives, strengthen internal control; advance the self constraint of local governments; establish effective financial regulatory system; establish rural insurance system of savings; establish and perfect the mechanism of loan guarantee and collateral of rural households and rural enterprises; establish bailout system for banks in difficult situation and market exit mechanism on a national basis.