Study On Credit Risk Measurement Of Commercial Bank In China

Credit risk is the oldest risk in the financial market, it is also one of the most important risks which commercial banks face. For a long time, Chinese commercial bank's credit risk measurement methods and means are relatively backward, which are largely confined in qualitative analysis and a single variable of financial ratio analysis. Domestic commercial banks have not only begun to use internal risk measurement models, but also have been lack of systematic and suitable methods and models to provide a scientific basis for their credit risk management system.With the rapid pace of China's financial system reform and financial industry increasing openness, domestic banks industry face severe challenge of equal participation in international competition. In the context of financial globalization, China's commercial banks are required to draw on the advanced credit risk management experience and develop the credit risk measurement techniques and models in line with China national conditions to improve credit risk management level.In this paper, the concepts related to credit risk are firstly defined, commercial bank's credit risk has the general characteristics of financial risks:uncertainty, transitivity, diffusion, etc., in addition, credit risk also has a bias return distribution, credit paradox phenomenon, difficulty in obtaining credit data and credit risk characteristics of the non-systematic. These features increase the difficulty of the precision of credit risk measurement and effective management of the implementation. What's more, credit risk is due to the uncertainty and asymmetric information of credit activities. The main objective of credit risk management is to prevent and control credit risk through credit risk measurement. Credit risk management mainly includes three parts:the identification of credit risk, credit risk measurement and credit risk control.Traditional credit risk measurement methods include expert approach, rating method and credit analysis method. With the rapid development of financial market, the traditional credit risk measurement models can not apply to the risk situation. Therefore, the application of modern credit risk measurement methods and models of credit risk management becomes especially critical. Credit Metrics model, Credit Risk plus model, Credit Portfolio View and the KMV model are very common credit risk measurement models, this paper analyses their strengths and weaknesses.China has the conditions for using the KMV model through comparative analysis. The fourth chapter is a core part of the paper, Black-Scholes option pricing formula and Merton pricing theory of debt risk is theory foundation of KMV model. The paper do empirical analysis by selecting the 24 listed companies stock data as samples. The result of empirical analysis suggests that KMV modle is feasible in China. KMV model relatively applies to our present stage of quantitative credit risk management level, which has important meaning to build our national credti measurement model. However, modern credit risk measurment models are only kind of tool. It is not enough to built model purely, the risk of quantitative management is a systematic project, which need to be fully functional and coordinated operation of the risk management system. As far as the actual development of China's commercial banks, we should constuct external environment and strenghen internal management of comercial bank.Commercial bank's credit risk measurement and management is a global issue. For commercial banks, the real objective of develop credit risk model is to measure and manage credit risk, and to allocate scarce capital rationally and improve operational performance.Anyhow, accurate measure of credit risk to the credit risk management is very critical, China's commercial banks should pay more attention to measurement methods and models for research in order to better measure of credit risk. Although the KMV model is of value in China, there are also with limitations, for example, the relative scarcity of historical data, the capital market is not too perfect, the authority's external rating agency in our country is almost blank. Therefore, it would be unscientific to copy those models mechanically, but it is unwise to abondon totally. We should sum up the advantage of these modern risks measurement models, and improve the inapplecability through scientifei analysis, China's commercial banks should establish risk measurement model in order to effectively measure and manage credit risk.