The Research On Risk Measurement Of Loan In China From The Perspective Of Economic Cycle

With the pace of reform and opening up, commercial banks in China have developed greatly. In the process, credit risk has always been an important factor in the development of commercial banks. Domestic banks and academics are paying more and more attentions to the impact of the macroeconomic fluctuations on the credit risk of commercial banks. The factors contributing to the credit risk of commercial banks are mainly non-systemic factors of the borrowers and macro-system factors. As a systemic risk, macroscopic system is difficult to spread through a combination of ways, thus it is very important to investigate macroeconomic factors in the management of credit risk. In addition, studying the relationship between economic cycle and credit risk can help to improve the ability of commercial banks to mange credit risk.The credit and risk cycle of commercial banks and economic cycle showed significant correlation at different stages of the economic cycle. In the rising stage, commercial banks often have a strong desire to lend increasing credit supply. But the fact is that a lot of the credit risk of commercial banks is usually accumulated as a result of great amount of lending in periods of economic expansion. In the period of economic downturn, commercial banks take more conservative credit policies to decrease the credit supply in consideration of the expectation of the decline in profit and the rise of the risk and tighter supervision, which often exacerbates macroeconomic fluctuations and extends the time when economy at low levels, leading to the spread of credit risk. This article will describe the impact of the macroeconomic fluctuations on the credit risk of commercial banks from the following four aspects:"factors of the banks", "factors of the borrower", "factors of the regulation" and "international factors". These factors affect the quality of credit assets of commercial banks in certain mechanism.We should discuss the relationships among economic cycle, credit cycle and risk cycle, of commercial banks, in order to study the impact of macro-economic cycle on credit risk of commercial banks. Changes in the economic cycle will affect the credit risk of commercial banks:in the prosperous period, it will decrease the loan delinquencies and defaults and loss rate as well as increase the credit rating of borrower, and vice verse. In the fluctuation of economic cycle, factors affecting the credit risk of commercial banks will increase credit risk. Forced to capital adequacy requirements, commercial banks can only meet the capital adequacy ratio requirements of regulators by reducing the risk weighted capital under the premise of their equity unchanged. And an important way to reduce risk-weighted assets is reducing the credit supply or recovering loans ahead of time. On the contrary, the opposite result will occur in the boom period. Meanwhile, considering of their own safety, the commercial banks will also control the supply of credit during economic downturn. Fluctuations in the supply of loans have direct impact on financing and investment of various economic agents in the real economy, strengthening the economic cycle volatility, accelerating the growth of economic in boom time and the recession in recession time. Through research and analysis we can find that the economic cycle, credit risk, and credit cycle interacts each other formatting form a chain of interaction.According to the actual situation in our country, this article makes an empirical analysis of the relationship between credit risk of commercial banks and macro-economic cycle using the data of macroeconomic, commercial bank credit and non-performing loans from 1994 to 2009. In the empirical study there are three problems:first, where to get the data and how to deal with it; second, line with the existing four classifications between five classes of "price scissors" problem; and third, loans stripping problem. This article handles them one by one based on the previous ways, getting relatively satisfactory results. The empirical research shows that the fluctuation of macroeconomic and supply of credit has impact on credit risk of commercial banks. Fluctuations of China's macroeconomic show characteristics of credit cycle while economic volatility and credit risk (non-performing loans) show strong inverse dynamic changes. These cause the inevitable systemic risks for commercial banks.In connection with the relationship between cyclical fluctuations of macroeconomic and credit risk of commercial banks, this article r proposes several proposals including prudential credit management, across-cyclical credit risk measurement, the dynamic loan loss provision and others to weaken the impact of the macroeconomic on credit risks of commercial banks.There are many limitations and shortcomings during the study of macroeconomic volatility and credit risk of commercial banks. First, samples of this study are not very adequate as it is not long after the restructure of commercial banks in China. Second, most of the data used in this article are annual data due to data acquisition methods. In fact macroeconomic changes do not necessarily occur at the end of the year, and they may occur during the year. If conditions permitting later, the quarter data even month data can be used to improve the accuracy of data analysis.