Commercial Bank Credit Risk Management

Abstract:Since 1990s, credit risk management has become one of the most critical and challenging areas in commercial banks. With the increasing complexity of financial markets and the constant development of derivative financial instruments , the exposure of commercial bank credit risk starts doubling, and its nature is more complicated. It is urgent for the bank to have a more comprehensive risk management system and the scientific risk management tools. The Chinese current financial market liberalization is still in its initial stage, and the loan is the absolute proportion to total bank assets, so the credit risk becomes one of the greatest risks of commercial bank .Once the credit risk management improperly, it may lead to the worldwild financial markets crisis, the subprime crisis in the US from 2007 to 2008 is a typical example.Therefore, the strengthening of Commercial Bank Credit Risk Management, not only has great practical significance, but also has certain forward-looking.There are three general processes of Commercial Bank Credit Risk Management: the recognition and measurement of credit risk, the control and transfer of credit risk, the evaluation of credit risk. This thesis discusses the following three aspects. Firstly ,the thesis gives the definition of credit risk, characteristics and general process of credit risk. Secondly, it makes a detailed study of the identification and measurement of credit risk and compares traditional model of credit risk measurement with the modern one.Through a comparative analysis status of Chinese Commercial Bank,this thesis focuses on the KMV model which is based on the Merton option pricing theory.This thesis selectes three typles of listed companies, blue chip companies, underperformance and SMEs, to make the analysis and a test of the applicability of the KMV model, and draws a conclusion that KMV model can identify and measure the default risk of blue-chip companies and underperformance , blue-chip companies and SMEs. But can not identify underperformance companies and SMEs very well. Finally, this thesis describes the control and evaluation of credit risk and puts forward suggestions to the management of Chinese commercial bank credit risk.