Credit Risk Measurement Of Commercial Banks

At the end of 2006, as the transitional period ended, China's Banking Industry which had an asset scale of over 52 trillion CNY opened up to foreign counterparts. There's no doubt that domestic financial institutions will face the competition from foreign counterparts who have advanced technology, rich experience, first-class services and sound management etc. A lot of evidence reveals that core competence of commercial banks is based not only on scale and profit, but also on perfect risk management system which is of vital importance to sustainable development of commercial banks.In June 2004, :《International Convergence of Capital Measurement and Capital Standards: A Revised Framework》(Basel New Capital Accord) was issued. New Accord includes Internal Based Rating Approach and capital incentives which will accelerate the pace of risk management system construction. People's Bank of China has organized professors from many commercial banks to do research on IRB in order to enhance corporation and communication among different banks. Some other banks also set up relative departments to foster this job. Considering shortage of data and weakness of foundation, there is still a long way for domestic banks.Credit risk is the risk of debtor's incapability to pay out principle and interests on time which will give a loss to the creditor. As the development of risk environment and risk management technology, the meaning of credit risk has been broadened to a wider range which includes not only traditional default risk itself, but also the change of default probability. Since Basel Accord was firstly issued by Basel Committee in 1988, credit risk had been introduced into risk management system and has become the one of the most important factors, In New Accord, credit risk, market risk and operation risk are the three main risks that commercial banks face. Therefore, risk management system plays a very important role in banks'operation and financial system's safety. Real estate industry is a capital-intensive industry, no company can survive without any external finance. Because of the limitation of domestic capital market, most real estate companies borrow money from banks which causes an intimate relationship between these two parts. Meanwhile, real estate industry itself has a high systematic risk because it always becomes the victim of macroeconomic control. Therefore, credit risk measurement and management is a must for domestic commercial banks. This paper is divided by five chapters. Chapter 1 is introduction which explains the reason of choosing this topic and also the creativity and short comes. Chapter 2 introduces the relative theoretical and empirical research in this field in and out of the country which is the basement for next empirical research. Chapter 3 pays attention to the development path of domestic credit risk management and real estate loan risk management which is the reality basement for next empirical research. Chapter 4 is the core chapter of this paper. First two parts is the empirical research based on Logistic model, as a result, the model chooses 2 financial ratios from 19 alternatives to judge the default probability of listed real estate companies. In next two parts, empirical research is based on KMV model which estimates asset value, deviation of asset value and distance to default, eventually, the model gives the default probability of all 64 companies. The last part is the comparison between two models'results. Test reveals two models give the same results of non-ST companies on a significant level. Chapter 5 is the overview of research results and gives some suggestions as to future policies of commercial banks and governmental departments...