Real Estate Credit Risk Control Of China's Commercial Banks:Based On "the New Basel Accord"

Credit risk is the most ancient and important form of risk for the banking or the whole financial industry, it is still the main target and core content of risk management for the financial institutions and Regulatory departments. It has a direct impact on the current socio-economic life in all aspects and the stability and coordinated development of the global economy. Credit risk management has become an important issue in the field of financial now. The priority and the key question of credit risk management is how to measure and assess its. In recent years, credit risk management theory have got a breakthrough develop, the development of credit risk analysis methods have changed from the subjective judgement and the traditional financial ratios score to comprehensive risk management.Risk measurement and risk optimization at the core of a comprehensive risk management trend which is to the core of risk measurement and risk optimization. A series of credit risk measurement model boom up at present, For example, Credit Metrics model, KMV model ,Credit Risk + model and Credit Portfolio View model, etc. This series of risk measurement methods has played a great role in promoting the Constantly improve of the Basel Capital Accord, These methods has been fully reflected in the Basel Accord document which stressed that the standardised method and the IRB should be used in commercial banks credit risk assessment. "The New Basel Capital Accord" advocated all the countries should build up credit risk measurement model through internal rating system and hoped that the Commercial Banks who did not use the internal rating model to establish their own credit rating based on the internal risk assessment model. In China, the real estate industry is a leading in the field of tertiary industry and have become major industries in the national economy, it is an important way to start domestic demand and promot economic growth and improve people's livelihood. As the real estate have the characteristics of covers wide range, large-scale investment, long development cycle, occupy a large quantity of capital but slow recovery time, etc. and the capital projects has a dedicated, focused and heterogeneity characteristics. It is belong to the typical of capital-intensive industries, these characteristics of the real estate of determine that it strongly needs the banking industry to support, Therefore, the real estate loan business become a core mission to commercial bank. Because of these characteristics of real estate, once loan default would cause very serious damage to the commercial banks. Therefore, there is very necessary for the commercial banks to analysis the credit situation of the real estate industry and take measures to cope with it.Basel Committee on Banking Supervision required all commercial banks to implement "The New Basel Accord" in the end of 2006, This article is from the perspective of "The New Basel Accord" to research credit risk management of real estate loans in China's commercial banks. After Considered the characteristics of the real estate credit and compared several kind of models, this paper select KMV model which is based on modern financial management and option theory to measure and predict the credit risk of China's real estate credit, As the model based on the data of stock market and the company's financial data, it Provide the company's actual situation in the credit timely, so it have a good forward-looking. Also, the real estate credit have a big fluctuations according to the ups and downs of economic cycles and changes in the market, therefore, predict in a timely manner is very important. The model very appropriate to forecast the credit risk of real estate market. In the first part of this paper, the concept of real estate credit and real estate credit risk will be explained, and then analysis some of its features and its existing problems; In the second part, this paper analyzes the background and framework of "The New Basel Accord" and its impact on China's real estate credit, Basel Committee on Banking Supervision require all the banks who meet conditions to implement the IRB Approach of "New Basel Accord", the implementation of the Senior IRB Approach is based on the world's few well-known credit risk management model, for example, Credit Metrics model ,KMV model , Credit Risk+ model and Credit Portfolio View model, etc. so, the article will analysis these four models, and Proposed that the KMV model is suitable for China's real estate and credit risk measurement. In the third section, This paper will choose the good performance and the poor performance of the two listed real estate companies, Using MATLAB software to estimate the KMV model through their 2005, 2006 and 2007 three years data. KMV model calculate the distance to default (DD) based on stock price and financial data of the listed companies, results should be that the excellent performance of the company have a lower expected default frequency or larger distance to default, on the contrary, if a company have a low distance to default or large expected default frequency, its performance should be poor. The empirical results subject to the theoretical line, therefore, the results of China's listed real estate company Empirical Analysis based on KMV model is quite coincide with the actual situation. From the empirical results, the paper also proposed that a real estate company which is relatively good reputation, and which is worthy of our attention. In the last part, the paper proposed some corresponding preventive measures against a number of problems of China's real estate credit risk. That the commercial banks should be based on international experience, and according to "The New Basel Accord" guidelines, proactive to carry out the reform to the real estate lending credit risk measurement and management system. Established comprehensive risk control system and promote the transfer mechanism of real estate credit risk for innovation.