Establishment Of Early Warning Index System Of Commercial Bank Credit Risk Classification In China

The question on how to avoid and control loan risk has long been the major concern for financial institutions and their monitoring departments all over the world. The World Bank's research on the crisis of global bank industry indicates that loan risk is the major causes for banks' bankruptcy. In China, it is commonly known that the credit asset quality in commercial banks is so poor, and the bad loan ratio remains so high, that loan risk would constitute the biggest potential risk for commercial banks. Besides, there are certain defects in the loan risk management system in Chinese commercial banks. Therefore one study on warning and management system of loan risk in commercial banks would be highly significant in its theoretical as well as its practical sense.This paper reviews the research of loan risk early-warning system home and abroad. Then on the base of Chinese present situation, the paper further analyses the problems of the Five Grade loan risk classification's early-warning function in commercial banks. Through this discussion, it tries to construct an index system of commercial banks' loan risk early-warning system, which will band together with the Five Grade loan risk classification. In order to get the integrated risk early-warning exponents, the paper does a series of tasks about analyzing index, choosing index and giving the weightiness of index. Subsequently, the paper employs the Gray model to emphasize this index system's forecast function. Finally, it takes the study of demonstration to prove the feasibility and applicability of the index system. By building the early-warning index systems of the commercial banks, we want to quantify the commercial banks' loan risk, and do something to better the development of Five Grade loan risk classification. Furthermore, it will be useful for supervising and forecasting the loan risks of commercial banks, and then it will lower banks' loan risks. Also, this paper hopes to be helpful to develop and perfect our commercial banks' loan risk early-warning system.