The Study Of Loan Risk Classification Management Of Agriculture Bank Of China

Loan risk classification management refers to that the credit manager of bank orinspector of the supervise authorities divide all loans into different arrangementswhich based on the inherent risk of loan and the repayment ability of borrowers, andtake corresponding measures.Loan risk classification management is an effective management method takenafter loan's decision-making. It aims at taking control of the status of asset qualityand taking corresponding measures for different arrangement asset and enhanceingthe capability of credit risk management.With the quick step of joint between domestic finance standard and internationaltradition, Chinese banking began to try out loan risk classification in 1999. VariousChinese banks began to put the five-tier system in force in 2002, then the fourcategories quit the stage in 2004.As requested by the supervise authorities, Agriculture Bank of China (ABC)has carried out the loan risk classification management. Under the five-tier system,bank loans are classified into five levels, namely performing, watch-list, substandard,doubtful and loss categories. Implementation of the loan risk classificationmanagement can evaluate loan quality more truly and accelerate the change of creditmanagement conception. Loan risk classification management helps to provide aunitive supervise frame and stress the action of cash flow in the evaluating of loanquality.However, we should not exaggerate the function of loan risk classificationmanagement. First, some banks lack the essential condition in practicing of loan riskclassification. The second in order, current loan risk classification management paysattention to inspect after loan's decision-making and can not provide the yellow alertof non-performing loans. Moreover, it cannot replace other content of creditmanagement flow, We should correctly orient loan risk classification management.In practice, there are many problems and disadvantages in loan riskclassification management.In the macroscopical point of view, information dissymmetry influences thefacticity and veracity of loan risk classification. Moreover, the central bank and thesupervise authorities have not drawn a unitively analyzable standard, which makesno benefits for the implementing of loan risk classification management.There are many problems in performing the loan risk classificationmanagement. Firstly, the managers take no heed of it and depend on the route ofcredit system. Secondly, basic management lags. Thirdly, there are many problemsin credit management. Fourthly, credit managers are lack of knowledge of finance.Finally, technology is restricted.There are many disadvantages of the method in active loan risk classifying.Firstly, it mainly depends on subjective judge. Secondly, the classification frame istoo rough to take corresponding measure. Thirdly, the defining of loan riskclassification is not exact.The collective settling project contraposing these problems is important. Firstly,we should strengthen credit management and fully realize the importance andnecessity of loan risk classification management. Secondly, we should designquantitative classification standard and depress the classification flexibility. We canclassify the performing and watch-list into more small classes. The purpose of thisclassification is to strengthen the management after loan's decision-making forperforming loans and improve the active action of the yellow alert for risk. Thirdly,we should train the credit managers. Fourthly, we should quicken the informationconstruction of loan risk classification. Fifthly, we should quicken the managementsystem construction. Sixthly, we should quicken the credit system construction.Finally, we should draw a unitive classification standard.When domestic commercial banks study loan risk classification, they mainlyconcentrate on four analysis tools, such as finance factor analyse, non-finance factoranalyse, cash flow factor analyse and assure factor analyse. In the point of view ofcredit practice, these factors form a whole organism. We should adopt the method ofquantitative analyse. On the basis of matrix chart and quantitative technical analyse,I have designed an integrative factor grading classify model to improve themaneuverability of loan risk classification management. We should redesign theflow of loan risk classification.The method of quantitative analyse is a classification flow. Firstly, we studiedthe matrix chart of finance factor analyse and overdue condition. Secondly, weclassified the loan into different levels according to the cash flow condition of theborrower. Thirdly, we redesigned the modulus of seven kinds of non-finance factors.Fourthly, we should analyse the assure factor and consider mainly validity, security,sufficiency and fluidness in the evaluation of mortagage and impawn. In guaranteeassure, we analyse the matrix chart of the ability and the wish of guarantor. Finally,we study loan risk classification with the credit rating.Referring to study of the four analyse tools, the number from 10 to 1respectively represent the ten levels from performing A to loss categories. Thecalculational result is the numerical value through which we can classify the loaninto ten levels. This is a method which is named the integrative factor gradingclassify model.It is a complex and important question to confirm the coefficient of the fouranalyse tools .By testing 17 loan database packages repeatedly, I enactment acombination which is the most accordant and regard it as the best coefficient in theclassified model.Integrative factor grading classify model is actually an attenuating for the oldfive-tier system and make it to be quantitative. There are two reasons for thisredesign. Firstly, it is easy to operate. Secondly, it is fit for popularize. The model isvery significative for practice. It is easy to inset into the actual credit managementsystem (CMS) after test.The loan risk classification is a routine part of the whole process of themanagement after loan's decision-making. We should take corresponding measuresaccording to the inherent risk of loan after classification. The method of quantitative...