China's Commercial Banks Credit Risk Management Study

Credit risk management is the core of modern commercial bank operation. The level of credit risk management may decide the fact of a bank. A series of financial events in the 1990s, such as the bankrupt of Barring Bank, Asian Financial Crisis and etc prompted people to rethink the credit risk associated with commercial banks. Accordingly, approaches and technology developed in the field of credit risk management, which finally lead to the birth of New Basel Capital Accord. The New Basel Capital Accord, introduced in 2004, suggests the new ideas for the bank risk management and the standards, techniques and system requirements of the comprehensive bank risks management, which provide the reference for China's commercial banks with the level of credit risk management relatively backward and provide a reference from, and also poses a severe challenge.The technology and level of the credit risk management are backward in our country today, so it becomes a very important act that we use foreign advancing experience of credit risk management to strengthen our level. The promulgation of Basel II offer the opportunity for us, and it is the main task the domestic commercial bank facing today that how to carry out IRB according to the requirement of the new agreement earlier. Based on the latest development of the Basel Accord, this project will be significant in terms of understanding the current condition of credit risk management in commercial banks in China, controlling non-performing loans, enhancing credit risk management and reducing the gap with well-managed world banks.Starting from the theory of credit risk management in commercial banks, this essay describes the definition & character of the credit risk and the influence on the commercial bank management and the empirical management of credit risk in foreign commercial banks. Secondly, after comparing the four major credit risk models, I conclude that the EDF model shows advantage. And then, EDF is applied to undertake credit analysis about the situations of several companies listed in the stock market and gets rather ideal result. The ending part discusses the Micro-and macro-environment of these models when applied in China. At last, based on the New Basel Capital Accord, I bring forward some policy advice that how to reinforce the credit risk management of the domestic commercial bank industry: transforming the functions of government to reduce intervention; fostering market-based competitive mechanisms; innovating on the ownership structures and building up modern enterprise systems employing credit derivatives to reduce non-performing loans.