On The Risk Management Of Consumer Credit In Commercial Banks

At present, along with the steady improvement of our people's income level and the gradual change in consumer attitudes,consumer credit which is one of the major assets business of our commercial banks has become a new form of consumption and a financing instrument for meeting people's growing material and cultural needs. But in the meanwhile, the consumer credit risk has also been gradually becoming apparent, and even has bad effect on the stability of financial system and the development of economy. Since consumer credit has launched for a short period in China's commercial banks, there are still many deficiencies in its risk management. In addition, China has fully opened its financial sector in December 2006, and allowed foreign banks to operate personal renminbi business. That caused a great impact on domestic commercial banks. In this context, it is particularly important for China's commercial banks to improve the risk management mechanism of consumer credit as soon as possible.Consumer credit is a kind of loans issued by the commercial bank to individual consumers which is used for the purchase of consumer durables such as houses and cars, or consumer services such as education, health care, tourism, etc. Consumer credit has its own unique characteristics and plays an important role in the national economy from both macro and micro perspectives. Consumer credit of the modern sense had emerged in Britain, the United States and other western capitalist countries of the late 19th century and early 20th century,which was the product of the commodity economy developed to a certain stage. Consumer credit had gradually developed in the process of industrialization and urbanization,and now it has become one of the most important businesses and profit sources of the commercial banks in developed countries. China's consumer credit got a late start, and emerged in the process of reform and opening up. In the mid - to-late 1990s, with the growing concerns of government, banks, businesses and consumer individuals, China's consumer credit business has begun to accelerate the pace of development. However, compared with developed countries, there still exist some problems in the process of developing consumer credit in China's commercial banks. In particular, the lack of the consumer credit risk management mechanism has become the bottleneck for the further development of China's consumer credit.Consumer credit risk which is a part of bank credit risks refers to the likelihood and magnitude of the loss suffered by banks when borrowers are unable to repay the principal and interest at the maturity of the loan. The identification of consumer credit risk is the first step in consumer credit risk management, which includes experts predict analysis method, risk tree search method,consumer credit scoring models and so on. As for the theories of consumer credit risk in commercial banks,there are modern credit vulnerability theory, asymmetric information theory, expected income theory, asset and liability management theory, etc.The United States has developed consumer credit for nearly a century, and now has formed a relatively complete risk prevention system of personal consumer credit. The risk management of consumer credit in commercial banks of the United States is characterized by paying attention not only to the approval before offering loans but also to the management after offering loans, and a good system environment and a sound human environment are the keys to its success. Presently, the consumer credit risks of our commercial banks mainly include customer risk, operation and management risk, policies and regulations risk, liquidity risk, interest rate risk and collateral risk. These risks are caused mainly by the following reasons: Firstly, due to the borrower's credit constraints and repayment ability; secondly, due to the banks'lack of risk prevention and risk monitoring; thirdly, due to the system factors; fourthly, due to the financial market factors.In view of the main consumer credit risks and their management of the status quo in our commercial banks, we should focus on the following aspects to accelerate the improvement of risk management of consumer credit in commercial banks:Firstly, establishing and improving consumer credit laws and related systems; secondly, strengthening the government's role in supervision and guidance; thirdly, improving the personal credit system; fourthly, strengthening the internal control mechanism of commercial banks; fifthly, improving the intermediary service system of consumer credit; sixthly, establishing and improving the consumer secondary market.