On To Establish And Improve China's Bank Credit Management Mechanism

Credit is the major asset and the income source of the four State owned commercial banks in PRC. The assurance of the quality of credit is the key to the business of the commercial banks. However, the proportion of the credit of the four State owned commercial banks being in bad quality is still high at present. According to the People's Bank, loans are divided into 5 categories and the percentage of the bad quality loans of the four state owned commercial banks in PRC was 26.1% out of total loans of the said four banks in the year 2002. Such high percentage of bad quality loan not only affects the profits and assets of the banks, but also the competitiveness of the banks. The control and management of credit not only materially affect any intended public offer of bank, but more importantly, the business of the commercial banks after taking into account the decreasing protection to financial institutions in PRC.In view of the regulations and systems in respect of credit funds, banks in PRC only have very limited ability to adapt changes of circumstances. In such situation, banks in PRC should learn from foreign banks' credit risk management experience and techniques to improve the credit risk system of the banks in PRC so that the banks in PRC can better manage the qualify of credit and improve their competitiveness.The writer of this article is based on the knowledge and understanding of the above issues. Based on the writer's solid experience in credit risk and the experience of foreign banks, the writer takes the view that there are 3 major areas to consider in order to establish an effective credit risk management system. The 3 major areas are :1. To establish a standardised credit evaluation system for the purpose of evaluating the clients' credit risks in a standardised way;2. To establish a systematic credit approval system for the purpose of improving the credit approval procedures so that there can be a better balance between the credit risk and the relevant income;3. To establish an effective approved credit management system for the purpose of monitoring the approved credit so that unacceptable credit risk can be detected and prevented.