The Discussion On Perfecting Credit Risk Management For Bank Of China

With China officially entering WTO and a new capital agreement of BASEL appearing on stage, the competition for Chinese banking industry will be more intense. "How to settle and prevent bank credit risk" and "to increase the technological level of credit risk management" have currently become one of the prominent tasks for the innovation and development of our banking industry. Nowadays, credit management in Bank of China is not perfect in that obviously we are left behind by the counterparts of those western developed countries in the credit management concepts and mechanism especially technology and information management, we are still on the preliminary stage. On the basis of studying and making current international banking industry's advanced credit management theory and practice for reference, and in the light of current problems in this field, this paper sheds lights on how to perfect credit risk management for Bank of China with the aim of improving risk management standard for it, making realization of a healthy and scientific development and providing references for participating in international competition.It's composed of four parts. The first part mainly deals with the analysis for the necessity of perfecting credit risk management of commercial banks. Firstly, the most important risk the commercial banks are facing with now in China is credit risk. Loan asset has accounted for over 70% in our total commercial bank assets, which is the chief profit asset for those banks. However, the high-percentage ill loans have greatly impaired the liquidity and payable ability of the commercial banks in China. This kind of excessive integration of credit risk is threatening those banks' existence, development and safety of the entire social financial system. Therefore, imposing on credit risk management has become an urgent affair our banking industry is encountering. Secondly, "BASEL II" sets a high line for risk management. As for capital monitoring, capital level can more truthfully reflect the risks encountered by the banks, forBASEL II, to a great extent, pays more attention to credit risk management. It is absolutely a great challenge for those banks in the developing countries which have just fulfilled stock reformation like Bank of China.The second part discusses the major content and characteristics of credit risk management, in the meantime, analyzes the traditional and modern risk management comparatively. In this paper, risk is defined as uncertainty caused by bringing about losses. Credit risk management refers to the credit management activities that analyze, predict, control, scatter and prevent those factors that result in bank credit risks and their occurring frequency, and the probable incurring degree in order to detract, reduce and transfer risks with the minimum expense, and guarantee safety of bank loans. Traditional methods of credit risk management mainly comprise 5C factor analysis, financial ration integrated analysis, multi-variable credit risk discrimination model and so on. The first two methods basically belong to qualitative analysis, whereas the last one embodies the idea of risk measurement, but gradually it can't adapt to new circumstances and problems that have already changed due to many drawbacks difficult to overcome existing in the model itself. Completely different from traditional credit risk management which chiefly counts on qualitative analysis and subjective judgment, modern risk management attaches much more importance to quantitative analysis, moreover, it has scientific classification, accurate quantification and substantively applies financial project technology and mathematical statistics model, which reflects the concept of scientific credit risk management. Models like VAR, Creditmetrics commonly employed by international financial industry, KMV, RORAC etc. all represent the latest technological standard.In the third part, current situation and existing problems in credit risk management of Bank of China are analyzed with relation to real work. The main problems are: 1. right risk management concept has not been formed. 2. Scientific risk management system has not been established. 3. Perfect bankinginformation framework has not been set up. 4. Advanced technology of measurement and management for Bank of China has not been adopted. There are still such a series of problems that constrains further development as simplifying methods, weakening basis and imperfect application effects etc. in the credit ranking and loan classification of Bank of China, which is regarded as the basis of risk quantitative management. From the more mature quantitative practice of international banks, credit ranking and loan classification are tow important factors that directly control the accuracy and reliability of credit risk quantification in commercial banks. In essence, behind the credit ranking information is the contract breaking probability of loans, while on the back of loan risk classification is loss and clearing off rate of loans. However, in the process of credit risk quantification, Bank of China is still in the preliminary stage of credit ranking and loan classification and doesn't achieve the aim of final quantification.The fourth part throws lights on perfecting credit risk management for Bank of China, including the suggestion of ranking the current credit and loans into five degree, further technological innovation and concrete analysis of risk measurement for X branch of Bank of China by making use of overseas mature risk management models. Perfecting credit risk management for Bank of China should be proceeded from three aspects: first, establishing credit risk management mode for Bank of China, including cultivation risk management culture, setting up scientific risk management system, perfecting information system establishment and improving risk measurement and management technology etc.; second, reforming the current credit ranking and loan classification for Bank of China; third, trying to test X branch on concrete evidence by applying currently popular RAROC model in the west to prove the feasibility of bringing in risk management model by Bank of China.Conclusion (research significance): it should be noted that credit risk is related not only to the operational development of banks, but also to the...