Research On The Credit Risk Early Warning System In Chinese Commercial Banks

Since the foundation of Bank of England in 1694, the commercial banking has been through the history of more than 300 years. The banking field focuses on pursuing the maximum profit, which operates the monetary capital and grants the credit. It belongs to the high-risky industry field.After the eighties of last century, the financial liberation and globalization accelerate the risk extent in the operation environment of the financial institutions. There have been many banks, which suffered huge loss. The bad debt in the American banks in 1990 was 30 billion dollars, which broke the historical record. Until 1992, the bad debt in Barclays Bank and the National Westminster Bank were 2.6 billion pounds and 1.9 billion pounds respectively.In China commercial banks, the non-performing loan in 1999 was 1500 billion RMB. Even if the financial asset management companies, such as Xinda, Dongfang, Changcheng, and Huarong, were established in that year to help the Chinese commercial banks to deal with the non-performing loans, it still stayed at the dangerous level of 1200 billion RMB. The huge amount of non-performing loans damages the image of the commercial banks and also the clients' confidence for the banks. The reason for the heavy loss is that the management in the commercial banks lacks the knowledge of the credit risk environment and the scientific risk management approach. China officially enters WTO in 2001. The gradual opening of the financial field let the banking field confronting the unprecedented challenges. Furthermore, the Basel II focuses more about the security and stability of the banking operation, which will be carried out in 2006.All the mentioned above convince us the urgency of establishing the credit risk early warning system in Chinese commercial banking field. The purpose of this thesis is to discuss the basic composition of the credit risk early warning system in commercial banks, and how to build the credit risk early warning model.In order to answer the key question about how to build the credit risk early warning system, this thesis analyzes the following parts. The first part generalizes the research development about the credit risk management in the domestic and foreign countries. Secondly, based on the theory of credit risk early warning system, it analyzes the two basic factors in this system and the two phases in credit risk early warning evaluation. Then, this thesis illustrates how to select the individual indicators in the early warning system and how to analyze them in details. Finally, the real case study will put the credit risk early warning model into practice and find out the shortcomings and improvement for it.