Risk Manangement Research Of Foreigen Exchange Business Of Chinese Commercial Banks

By the end of 2006, after China joined in the WTO, a five-year transition period of financial services industry has expired. Many foreign banks gradually entered the domestic market to compete with the domestic commercial banks. At the same time, the domestic commercial banks have also funded efforts to develop abroad. In this process, strengthening and improving their risk management capability is an important factor to win in the domestic and international market competition. On the other hand, with China's rapid economic development and sustained appreciation pressure of the RMB, the People's Bank carried out exchange rate system reform, and increased the fluctuation extent of RMB exchange rate to dollar. Therefore, the business risk quickly increased for foreign exchange business of the domestic commercial banks, and the discussion of the foreign exchange business development and risk management of Chinese commercial banks is particularly important and urgent.Foreign exchange business risk of Chinese commercial banks has its own characteristics. There are relatively large position of foreign exchange exposure which is facing greater exchange rate risks and more policy foreign exchange business due to historical reasons which is facing greater credit risks. Low quality of foreign exchange credit assets, scattered foreign currency accounts and the behavior of irregularities violations are also in existence.At present, the risk management system of Chinese commercial banks is not perfect. Because the lack of risk management mechanisms is widely existed, the foundation of risk management system is very weak. And the intensity of the implementation still needs to be strengthened, internal audit mechanisms do not sound, the methods of risk management lag behind, the use of information technology systems lags seriously. The foreign exchange business risk identification, measurement, monitoring and control capabilities have yet to be improved, risk management practitioners quality is not high, and the banks are lack of innovative capabilities. The risk management external environment of Chinese commercial banks is not yet perfect.In order to solve the above problems, Chinese commercial banks could improve their risk management of foreign exchange business from the following measures. Firstly, from the basic viewpoints of contingency theory, according to the commercial banks in the environment, a risk management organizational system of foreign exchange business should be built. Secondly, using advanced enterprise management theory, straightening out the foreign exchange business risk management processes, a comprehensive system of risk management policies should be established to strengthen centralized management, improve the disclosure system, and strengthen internal audit and inspection. Thirdly, it is important to improve the quality of practitioners and establish an advanced risk measurement evaluation system through a comprehensive training and a performance evaluation and incentive mechanism. The banks should improve their pricing ability and enhance financial innovation ability at the same time. Fourthly, supervisors should constitute relevant policies to encourage and support the commercial banks innovation, and their own management capacity should also be raised. Ultimately, Chinese commercial banks would improve their risk management level of foreign exchange business and achieve the required standards of Basel agreement as early as possible.