The Applied Study Of VaR To The Credit Risk Mangement Of Commercial Banks Of China

Risk management has been core competition of contemporary commercial banks. Credit risk is among the major risks facing commercial banks and throughout their operation. Commercial banks with huge credit risk will not only endanger its daily safe operation, but also render destructive effects on the whole payment system once bankrupt, precipitating the financial system into national bankruptcy and financial crisis through Domino effect. Therefore precise and effective identification, measurement and management of credit risk have been the focus of attention of commercial banks and financial supervisors.Starting out with definition and features of credit risk in commercial banks, the thesis encapsulates concept, parameters, estimation method, and virtues of VaR(Value-at-Risk), a technique managing credit risk in commercial banks, from the risk measurement view point. Based on that, comparison and analysis of different VaR-based risk management models are given. Related to current state and cause of risk, it finds necessity in introducing more advanced risk measurement method in banks of our country. Analysis shows that government intervention, bank governance structure and poor information on leader are the main cause forming credit risk in domestic commercial banks.Put forward by J.P. Morgan bank, CreditMetrics is a model used to assess credit risk based on VaR. The major part of this thesis has been devoted to modifying the input parameters of CreditMetrics Model in the light of facts from domestic commercial banks, and empirical analysis to our country's applicability using loan data obtained from one of domestic commercial banks. The results show that the modified CreditMetrics Model can precisely measure credit risk in commercial banks of our country.Finally, the thesis contends, establish the credit risk management objectives and policy,create the basic enviroment that VaR uses and a supervision framework adopted by supervising authority serve as the main aspects of preconditions in VaR practical application, which will provide a new angle to precise measurement in China commercial banks credit risk management.