Credit Risk Management In Commercial Banking In China

If the capital was like the blood in the economy, the commercial banks, which are dominant in the financial market in China, were like the heart of a body. As the process of the economic systems restructuring and opening is deepening, the competition pressure is greater, the immense risks in commercial banking in China should be dealt with to stabilize the financial system. There are many kinds of risks in banking, but the credit risk is the dominant one. According to the current credit ranking method, there are five ratings of bank loans, the non-performing loans accounts for about 20% of total loans at the end of 2003, that is 10 times than the average level of top 100 banks in the world. If deducting the loss reserves, which is 1% times than total loans, the potential loss exposure account for 9% of the total loans, but the average capital adequacy rate of all commercial banks is just 6.3%, which represents the weak capability of preventing banking risks. Therefore, to enhance credit risk management is not only important but also urgent. Therefore, it is important to the soundness of the commercial banks as well as to the stability of the financial system and sustainability of economic growth.There are 4 sections in this paper. In the first section, the author introduces the experience of credit risk management in banking in western countries, including two subsections: the internal credit risk management and the external supervision. In the first subsection, the author focuses on the measurement of credit risk, in the second subsection, the author introduces the new Basel Capital Accord. In the second section, the author analyses the cause of the credit risk producing in banking and find out that it not only relates to the stimulation lacking, but also to the weak management capacity and to the distortion of the relationship among the government, commercial banks and state-owned enterprise, as well as the macro-economic environment. In the third and fourth sections, the author gives some suggestions to enhance the credit risk management in banking, first, innovate the property relationships of state-owned commercial banks and state-owned enterprise, lead to shareholders diversity in commercial banks , and establish the modern corporate governance mechanism, in order to realize the goal of "clear ownership, balance between responsibility and authorization, fine protection, smoothly circulation balance among the authorization,responsibility and interest" , as well as the new relationship among the government, commercial bank and enterprise in the market economy. Secondly, improve the macro-economy environment, especially the investment and the financing system, and construct a good flat in order to support the development of commercial banks and the enterprises. Thirdly, strengthen the internal control and apply the advanced skill of the credit risk management for banking, so as to improve the credit risk management. At last, CBRC (China Banking Regulatory Commission) should strengthen the risk-based prudential supervision of banking to catch up with the process of economic reforms in China and the financial globalization.