China's Commercial Banks Within The Credit Risk Evaluation System Research

Techniques, practices, and tools for credit risk management are evolving rapidly in the last decade, with the advent of Basel II, Western banks are seeking for new approach to build or develop their own Internal Credit Risk Rating systems. It is becoming an emergent issue for the Chinese Banking organizations to adopt the internationally recognized practices in the this field, since credit risk management is the key facet of banking management and Chinese banking sector is opening up wider day by day. Moreover, the requisite technology and experience in this field is yet to be acquired for Chinese banks and researchers.It is the author's intension to introduce the up-to-date methodologies and approaches in this dissertation and analysis their feasibility in Chinese commercial banks. At the end of the paper, suggestions are given to the building of Chinese commercial banks' internal credit risk rating system.The Paper consists of four parts. Part One accounts some basic concepts about internal credit risk rating system with a retrospect of the researching background in this field. Part Two addresses on the credit risk models, including the analysis of Z-Score model and CreditMetrics model. In the later part, the paper discusses the feasibility of these two models in China, with some empirical analysis on the limitation of the models' application in China. Part Three starts with the discussion of specialty of Chinese banks' credit risk, and concludes the main defects lying in the credit risk management of Chinese banking sector. Part Four sets forth the outline of internal credit risk rating system of Chinese commercial banks'. At the end of the paper, it is discussed about the relationship of internal credit risk rating system and Basel II IRB approach.