Study On The Measurement Of Credit Risk In Domestic Commercial Banks

Credit risk has always been one of the most important risks faced by commercial banks. It is the appropriate measurement of credit risk that the successful operations of the commercial banks mainly depend on. For a long period of time, the risk management in the commercial banks is mainly described qualitatively, while the application of quantitative analysis is in a assistant position. Owing to the tremendous non-performance asset of banks and sever competition among the foreign banks after entering WTO, improving credit risk measurement technology has becomes an important question for discussion in Chinese bank industry.The thesis consists of five chapters. Chapter One is the introduction. On the basis of the condition of commercial banks in our country and from abroad, it points out the significance and defines the term commercial bank's credit risk. Then it puts forward the key, the initiative and the limit of the study on the methods to measure credit risk with a literature review of relevant studies and researches. Chapter Two introduces in detail the modern models for measuring credit risk applied in foreign countries and analyzes their adoptability in our country by comparison. Chapter Three reviews the traditional and modern methods to measure credit risk in our country and makes a special comparison between the presently applied Five-category assets classification for bank loans and The Internal Ratings-based Approach(IRB). Finally, it draws a conclusion that we should take advantage of IRB to construct a model for measurement of credit risk which is compatible to our present conditions. Chapter Four is the major part of this thesis. At first, it puts forth the necessity and urgency to apply IRB. Then it proposes to construct a model for the measurement of commercial bank's credit risk on the basis of IRB in our country. Finally, an empirical analysis of the model and a test on its effectiveness are made. With regard to the difficulties we confront in the application of IRB in our country, Chapter Five gives some corresponding suggestions and policies as followed: Firstly, establish effective organizations and institutions to guarantee the smooth proceeding of IRB. Secondly, construct IRB Basic Datebase to ensure the stable circulation of the system. Thirdly, creat a positive atmosphere for banking credit. Fourthly, cultivate a specialized staff for credit analysis. Lastly, bring the central government's surveillance into full play.