Study On Loss Given Default For Banking Credit Risk Management

As the prime risk of banking industry, credit risk has been considered seriously and treated consciously in the West. For the sake of poor risk management technology and less study on fundamental variables of banking credit risk, the credit risk management level has been improved slowly in our country. Further more, on December 11, 2006, our government announced to fulfill the WTO promise, opening the banking industry to outside fully, which makes our commercial banks involve into fierce competition. So it's urgent for us to make some fundamental researches related to credit risk management. From this respect, my paper focuses on Loss Given Default, a basic variable of Internal Rating Based Approaches (IRB). I hope my work will be valuable to our country's credit risk measurement and management.Firstly, this paper introduces the development and evolvement of banking credit risk management theory. Then it tells the new requirements of Basel Accord, the IRB Approach and the approach's fundamental variables. In the rest of the paper, on the ground of foreign and domestic studies, I have made great progress in the study of LGD measuring technology, structural characteristic and basic LGD database foundation.As the study of LGD measuring technology, this paper reviews the development of LGD measuring technology, which shows a history from quality to quantity, from simplicity to complexity, from linearity to nonlinearity. Also I point out the outlook of LGD measuring technology. When studying the structural characteristic of LGD, I select five factors namely exposure, industry, borrower's area, maturity and credit risk mitigants and find out that LGD varies along with the difference of such factors. The results help to take proper measures to manage credit risk. As to the LGD database foundation, I presented a detail LGD Database building proposal on the ground of international mature LGD databases, which is adaptable and suitable to China.This paper has made integrated study on LGD for the first time in China. Not only my work will benefit the forthcoming study on this issue but also will benefit bank's credit risk management, loan disbursement instruction and credit risk regulation.