Research On Prevention Of Bank Credit Risk Based On The Microeconomic Foundation

The financial security, especially the banking system security, is playing an extremely important role in improvement of economic efficiency and regulation of macroeconomic operation. At the same time, the banking system is also the most vulnerable link of modern economic development.2008 research report released by Goldman Sachs and September 2009 the British "Financial Times" said: "China's bad debt is worrying. Though published data shows non-performing loans falling metronomically for the past five years, but these years' loan explosion has many fretting over a commensurate rise in bad debts." The existence and increase of non-performing loans have become a heavy burden on the operation and development of banks. It will not only affect the normal function of banks and threaten the financial system's safety, also enlarge endanger to the entire national economy by banks and company, undermine the stability and healthy of the national economy. Therefore, control credit risk and prevention of financial crisis is very important to achieve sustainable social economic development.Credit risk theory has achieved a great deal of research results with high academic standards and practical value in China. However, these research areas are generally limited in the financial field:some studied how to establish the internal control mechanisms of credit risk from commercial banks own point of view, some discussed how to strengthen supervision from government regulatory point of view, some introduced quantitative credit risk management model used by western commercial banks, others studied credit risk characteristics, measurement methods and resolve solution in China, etc. Little research investigated how to prevent credit risk from company point of view. The author believes that credit risk has its particularity in China's economic transition, the reasons for the credit risk arising both banks and company. Therefore, how to prevent the bank credit risk should be researched not only from the macro-financial sector, but also from the microeconomic foundation-company. I. The main contents and viewpointsThis article is divided into eight chapters, the main contents are as follows:Chapter one is introduction. This chapter states the background and reasons for the author to choose the topic of this article, a literature review of credit risk, as well as the framework, methods and data sources of this article.Chapter two is a theoretical analysis about microeconomic foundation leading to bank credit risk. After simply summarizing the research on microeconomic foundation by foreign scholars, construct an analytical framework of microeconomic foundation factors leading to bank credit risk, including moral hazard, tax shield effect, financing constraints and corporate control, etc.Chapter there analyzes and compares bank credit risk and the microeconomic foundation in China. This chapter describes the status of bank credit risk and microeconomic foundation at first. Then it compares and analyzes characteristics of both foreign and domestic bank credit risk and company profitability. Analysis shows that, regardless of international comparisons or constitutive characteristics, China's bank non-performing loans can not be taken lightly. One essential reason for high credit risk in China's banks is the low proportion of internal financing and the high debt ratio as well as the excessive dependence on the bank credit caused by the heavy tax burden of company.Chapter four deals with the bank credit risk generating root of microeconomic foundation in China. Research shows that moral hazard, the tax system and financing constraints contribute to weakening microeconomic foundation, which causes bank credit risk, corporate control is not significant. Moral hazard leads directly to the credit risk; tax system and financing constraints lead to corporate excessive reliance on bank credit and high financial leverage, which is a potential credit risk.Chapter five introduces the bank credit risk early warning models based on the microeconomic foundation. This chapter selects the most representative model of each development stage, focuses on the current mainstream credit risk warning mathematical models, and paves the way for next chapter.Chapter six is empirical studies based on China's data. Combined with the related financial indicators, three empirical methods have been used, including Multiple Linear Discriminant model, Logit model and KMV model. Empirical results shows that the three empirical methods can all forecast listed company credit risk two years in advance, indicating that the three models have good applicability in China. Terms of prediction accuracy, KMV model is the best, Logit model is the second, Multiple Linear Discriminant model is worse. Note that, KMV model empirical results reflect a worrying phenomenon:the distance to default of listed company show obvious downward trend, either ST companies or normal companies, which is due in part to the stock volatility increasing led by the split-share reform, on the other hand, which has much to do with liability scale expansion of listed companies. Distance to default's decline show credit conditions'decline of listed company to some extent. In this case, the banking should full use of credit risk warning models, to better measure and control credit risk.Chapter seven provides constructive comments on prevention of bank credit risk. Based on the foregoing analysis, this chapter puts forward to strengthen microeconomic foundation to prevent bank credit risk. For moral hazard, it is imperative to establish the reputation incentive mechanism of company managers, the reputation mechanism of company and the corresponding disciplinary mechanism, raising the cost of moral hazard behavior, reducing the probability of moral hazard from the cost-benefit perspective. For corporate excessive reliance on bank credit and high financial leverage brought by financing constraints and tax system, it could be lightened by increasing internal financing sources and widening external financing channels, such as accelerating depreciation of fixed assets, reducing corporate tax burden, easing equity financing restrictions and developing bond market, etc. In addition, it should gradually establish an efficient banking credit risk early warning system by making full use of foreign advanced early warning model, minimizing the losses caused by bank credit risk.Chapter eight is conclusion. This chapter summarizes the main conclusion of the study, and looks ahead the follow-up research about this article.â…¡. Main innovation of this articleFirstly, existing researches on bank credit risk prevention lay more emphasis on financial sector, such as bank internal control mechanisms and government regulation, but little on microeconomic foundation-company. This article breaks through the limitations of the financial sector, tries to establish a systematic analysis framework of bank credit risk prevention on the basis of analysis on company.Secondly, the article solves KMV model and calculates the potential credit risk of listed companies with new mathematical methods. The calculation method uses least squares and iterative optimization theory, resolved by Matlab software programming, so that the model result has higher accuracy.Thirdly, this article deeply studies the compositive charateristcs of current credit risk, the financing structure and tax burden of companies, discovers that one essential reason for high credit risk in China is the low proportion of internal financing and the high debt ration and the excessive dependence on the bank credit caused by the heavy tax burden of companies. On this basis, this article recommends to greatly reduce the tax burden of companies, prevent bank credit risk. However, tax cut is a big controversial issue in theory and practice, this article full demonstrates that the current Chinese government has significant financial resources to tax cuts.