Soft Budget Constraints And The Study Of Non-performing Assets Of Our Commercial Banks

Since reforming and open policy, our country economy has maintained high speed growth. However, on the contrast, the bad assets of our country commercial banks have been at the higher level for a long time. It attracted all attentions of the whole nation. Recently, with the increasing reform of commercial banks, the non-performing assets have declined rapidly. What is worrying is that if the downward trend of bad assets can be continue when there is a cyclical macroeconomic adjustment. In other words, if there is a seriously rebounded possibility of non-performing assets with the macroeconomic changes . To answer this question, it is necessary to do some historical research for the non-performing assets of commercial banks, and look for the internal mechanisms about the appearence of large number of bad assets. This is the point of my paper.The starting of this paper is from historical study of Chinese commercial banks' bad assets. Through comparison study, we found that the non-performing assets of commercial banks have the characteristics of high rates and long duration. In order to explain this phenomenon, we will introduce the soft budget constraint theory, and discuss the soft budget constraint logic of Chinese commercial banks and state-owned enterprises from qualitative and quantitative perspective and the relationship between the non-performing assets, on the condition of economic transformation. The core of this article is to make clear the relationship between central government, local government, commercial banks and state-owned enterprises in the process of economic reformation and find the intrinsic mechanism of non-performing assets .Through, research, we find that there is a logical relationship of " soft budget constraints of state-owned enterprises -- government intervention -- the non-performing assets of commercial banks -- the bank's soft budget constraints - comprehensive management " among the principals, especially, the double soft budget constraint mechanism play an important role in the process of non-performing assets appearence of commercial banks .By the further study, we discover that this kind of mechanism have played the role at least in following two aspects: First is the self-accumulation of sank cost; Second is about the moral hazard of commercial banks and financed enterprises. Currently, because of the complexity of soft budget constraints of commercial banks and state-owned enterprises and the immature of our economic environment, These mechanisms still have the space in some certain extent, and add some uncertain factors for the management of non-performing assets.However, the good news is that in recent years the implementation of a series of reforms has significantly reduced the possibility of performance of this mechanism. Therefore, as long as the continuance to promote comprehensive reformation, including the reformation of the system of government, state-owned enterprises and commercial banks in the direction of hardening soft budget constraints of commercial banks and state-owned enterprises ,the bad assets can be controlled effectively, and the history can not be repeated.