Comparative Study Of Chinese & Korean Finance Leasing Industry Risk Management

Finance leasing emerged in 1952 as a specialized financial service industry in the United States. It is an alternative financing method, which is a blend of collecting operational capital and acquiring equipment with short-term, low cost, and specific processes. Chinese finance leasing was introduced in the 1980s from Japan. Through these over 20 years, Chinese finance leasing industry has been developed with a high growth rate, and performed an aggressive act on whole Chinese economy, especially on introducing foreign capital and advanced high-technology equipments. It has also encouraged small & middle sized enterprises to be modernized and enhance its'export capability. Although Chinese finance leasing industry showed significant performance, however it also caused a lot of negative problems. The current risk exposure level of Chinese finance leasing industry is fairly high, the long-term overdue leasing liabilities were already considered as serious obstacles to industry's further development. There are two major reasons of this poor experience. The first reason is based on the lack of identification with financial leasing business of whole society. Furthermore under matured credit systems make troubles leasing company to collect leasing payments and return equipments. The second major reason is that China lacks specific policy rules to standardize and guarantee, which radically limits this development. The most important reason, in decades, is less developed risk management system of finance leasing companies. Chinese finance leasing companies have just focused on expansion without consideration of risk management which is equally important to finance institutions to maintain sound asset quality. This situation strongly demands that Chinese finance leasing companies employ sophisticated risk management techniques and monitor rapidly changing risk exposures.This thesis will analyze the current risk status of Chinese and Korean finance leasing industry, measure the exact financial and management risks of Chinese finance leasing industry, and finally develop the risk management models which can be applied to it. Since the financial crisis happened in 1997, Korean finance leasing industry has processed full-scale financial reforming programs, and emphasized the importance of risk management constantly. Based on this experience, the Chinese finance leasing industry also has to study its development outlook and risk management methods. This thesis, based on the theories of finance leasing risk management, will define and describe different types of leasing business and the characteristics.Secondly, the thesis will evaluate the current risk status of Chinese and Korean finance leasing industry, using CAMELS method. This includes (1) instruction; (2) actual analysis based on the statics datum of 8 Chinese and Korean finance leasing companies; (3) development of composite.Finally, the thesis will introduce the credit risk management models and make summary.The CAMELS analysis explains there is a huge gap between Chinese and Korean finance leasing industry in terms of risk management, and the gap would affect finance leasing company's whole management. Therefore, it is necessary that Chinese finance leasing industry should strengthen the compliance role to leasing companies, and at the same time, every finance leasing companies also have to develop and improve internal risk management systems.