A Study On The Credit Risk Management Of Commercial Banks In China With KMV Model

Credit risk has always been the most important financial risk form confronted by commercial banks, which is more crucial to the Chinese commercial banks whose accounted for interest income to total income ratio is about 88 percent. Because of a large amount of bad property in bank and the competition with foreign banks, the improvement of credit risk measurement level become the important project for domestic banks. In the international community, credit risk management is undergoing a revolution, and has emerged a large number of representative quantitative credit risk management model as the new Basel Accord and the implementation of derivatives transactions of rapid development. In credit risk management of china commercial banks, the weakest link is quantitative management with models.This thesis is committed to research of Chinese commercial bank credit risk management in the perspective of quantitative analysis. According to the annual financial statements of Chinese major commercial banks in 2007, which disclose information and credit risk management measurement methods, we analysis Chinese commercial banks credit risk status and problems that exist in credit risk measurement. By comparing the CreditMetrics model, CreditRisk+model, Credit Portfolio View model, and KMV model of credit risk measurement, we analyze the applicability of credit risk management model in China.This thesis mainly studies applicability of KMV model to quantify credit risk management in Chinese commercial banks, and as subjects, the 67 ST listed companies existing in Chinese securities market at the end of 2007, which have finished completion of share-trading reform, and the counterpart, the 67 non-ST-listed companies are selected in this thesis; according to two types of samples in 2007 the company's financial data and data on stock transactions, and differences between the credit risk two types of companies may bring to commercial banks are measured by KMV model. Calculated by KMV model, the empirical research shows that:ST companies' distance to default is smaller than that of non-ST Company's. As sequent measurement indicators, the bigger of distance to default is, the smaller of the possibility of default will be; on the contrary, the smaller of distance to default is, the bigger of the possibility of default will be. This shows that KMV mode can identify credit risk differences between ST companies and normal company better, because distance to default has better reflect to default risk of listed companies. The main advantage of KMV model is distance to default of listed companies can adjust immediately according to the update of stock data. In Chinese current conditions, distance to default of listed companies can be warning indicators of listed companies' load. Finally, the thesis puts forward several proposals on how to enhance the ability of commercial banks' credit risk management.