| The third draft of The New Capital Accord,which was finalized in 2004, symbolizing the new agreement has been formally become an international framework for bank risk management practices. The New Basel Accord adjusted the method of capital regulation, introduced the market risk and operational risk into evaluation system, and pointed out thress alternative methods to quantify the credit risk. The Committee requests all the regulatory authorities should urge the big transnational banks to use this approach in measuring the bank's quantitative risk and computing the regulatory capital. In 2007, The China's Banking Regulatory Commission issued the "Guidance to implement the new Capital Accord," specifically requested eight new capital banks to be full prepared before the end of 2010,or at the latest by 2013.This is not only pressure but also an opportunity, so it is extremely necessary and urgent to analyze what have been and can be done.The main conclusion of this paper are as follows:1.To introduce the background and significance of the research,review the literature and point out there are few research about the progress of implementation of New Accords in china recently, which is emphasized in this paper.2. Introduced three methods of measuring credit risk:standard approach, the foundation internal rating based approach and the advanced internal rating based approach, focusing on the comparison between IRB method and Standards method. Briefly addressed four risk factors'concept and quatitative methods under IRB approach:risk exposure (EAD), the probability of default (PD), loss given default (LGD) and maturity (M).3. It analyzed the applicability of the new agreement and its challenges on Chinese financial industry. Since China is a developing country that stays on the period of economic transition, and those regulatory models in western country can not be necessarily applied, therefore, the most important thing to analyzing the applicability of the Basel II Accord's framework is to seek the underlying reasons of credit risk emergence. This paper points out the particular sources of credit risk in Chinese commercial banks from four aspects:History and policy reasons, defects of property rights system, non market-oriented bank-enterprise relations, and the impacts of government intervention.This paper divides the credit risk into inventory risk and incremental risk, and also puts forward the opinion that although the state has adopted the five-category loan classification and established the asset management companies to address the inventory risk in commercial bank, we must start from building the internal risk management system in banks to fundamentally solve the incremental risk.Of course, it is impossible to reach this in one move, for there are no internal and external environment conditions for immediate implementation in Chinese commercial banks. The three pillars of Basel II Accord have raised challenges on Chinese financial industry to different extents, namely 1) the minimum capital adequacy ratio requirements, on the one hand, have positive impacts on China owning to the adjustment of state risk rating method, while on the other hand, they have also raised challenges for Chinese banks to build internal rating system, enrich capital supply channel, maintain financial credit unshrinking and transform the comprehensive risk management system.2) The external supervision has raised challenges for the effectiveness of external regulation, legal environment establishment and cultivation of risk management culture.3) Market discipline requirements have raised higher requirements for the levels of financial disclosure and information transparency.4. It analyzed the status quo of credit risk in nationwide commercial banks. Based on the latest data in 2008, this paper summarized the status quo into 4 points:1) the rate of bad loans is a little bit higher, while it continues the trend of double-down; 2) Although the capital adequacy ratio has reached the standards, there is still uncertainty in the core capital; 3) small and medium commercial banks are about to face the problem of insufficient capital; 4) credit risk is still much focused.It pointed out that although there is certain decline of credit risks in Chinese commercial banks compared to the past, the core issues and the concentration risk of capital are still serious hidden trouble. Meanwhile, it verified the correctness of China Banking Regulatory Commission's guidelines on classifiably implementing and hierarchically promoting the Basel II Accord.5. It examined the implementation status and the future path of China's new capital banks. Firstly, through comparing the organizational structure of risk management and the progress of Basel II Accord in detail, it studied the status quo for state-owned commercial banks to implement the credit risk management framework of Basel II Accord, pointed out the theory classification of risk management organizational structure adopted by state-owned commercial banks (except the ABC outside) as well as the corresponding advantages and disadvantages, and puts forward the gaps of China's state-owned commercial banks to fully implement the Basel II Accord, including:1) Since China's state-owned commercial banks mostly adopt the mixed matrix risk management model, so it puts forward higher requirements for the effectiveness of internal control and the capital construction of information transmission;2) Through the establishment of bank's internal PD system, the requirements of primary law is achieved basically, while seeing from the specific analysis before, in and after matter of credit process, there are still several gaps below with the senior law:for example, the 6 exposure category is still not achieved, the multi-level loans classification isn't achieved except for company's business, the dynamic rating is not achieved, the econometric models is immaturity and the disposing methods are single, etc.And then, from the aspect of joint-stock new capital banks, this paper analyzed the characteristics of joint-stock new capital banks that are different from the state-owned commercial banks, including:1) The loan concentration risk is serious, which is especially seen in the industry , concentration risk and regional concentration risk. Although it stems from the business features of small and medium joint-stock banks, it does not match the goal of Basel II Accord. The joint-stock capital banks should pay attention to optimize the credit structure and diversify risks;2) The progresses of joint-stock new capital banks to implement Baselâ…ˇAccord are basically faster than the state-owned commercial banks. Because of their own simplified organization, flexible mechanism, and the most adoption of simple matrix risk organizational structure of state-owned commercial banks, so information flows more smoothly, while the IT support systems still need further improvement;Finally, through integrating the status quo of 6 big new capital banks, which including the state-owned commercial banks and joint-stock new capital banks, it puts forward the necessary path to achieve the Basel II Accord in the future:1) Disperse the industry concentration risks and the regional concentration;2) Establish and improve the credit rating system to provide the credit risk management with objective and impartial information;3) Speed up the building of IT support systems and database;4) Continue to improve risk measurement and management model, and focus on model testing and model stability test;5) State-owned commercial banks should increase the credit risk control on government investment and financing projects through the establishment of expert groups.5 At last, this paper puts forward the proposed steps to implement New Basel Capital Accord in other Chinese commercial banks:First, since the new Basel accord is aimed at large international active banks, the small and medium banks should determine whether to adopt the Basel accord based on their business scale,-and should not blindly adopt new standards;Second, whether to implement the provision of new accord, they should establish the comprehensive risk management strategy that can coordinate with their own development, has capital constraints and can effectively cover the loss based on their risk conditions.Third, it is necessary to select the proper organization and management structure of risks. This paper suggests small and medium commercial banks to adopt centralized framework while the large commercial banks to apply matrix system, and to set up a stable IT support system which is able to transfer risk management information either vertically or horizontally.The last part suggests those commercial banks who voluntarily apply for implementation of new accord to adopt Internal Ratings-Based Approach rather than Standard Approach, and, at the same time, to realize the comprehensive risk management goals based upon the three stages of the building the credit risk management system. That is, to be specific, identifies risk and. measures risk, matches the benefits and risks, and optimizes the risks and benefits.This paper tries to be innovative in three aspects:1) Overall research the applicability of The New Basel Capital Accord in China and various challenges that would occur when fully implement the three pillars.2) Systematically discusses the current implementation status of the 6 new capital commercial banks (excluding Agricultural Bank), who will carry out the new accord according to Banking Supervision Commission in 2010,compares their credit risk management systems and differences, points out the future path of those 6 banks on how to execute the new accord, and states that China's state-owned commercial banks should set up a national investment and financing projects expert group to tackle that special credit risk.3) Put forward some suggestions on how to establish the credit risk management system in other commercial banks by analyzing the paths that new capital commercial banks adopted to implement the new accord. |
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