Bank Project Credit Risk Analysis Based On The Local Government Financing Platform

Since July 2008, in the effect of financial crisis, economic and export growth of china had slowed down significantly. According to the changes in macroeconomic and financial situation, the central government adjusts the macro-control policy in a timely manner, from the late 2007's "double prevention" into mid-2008's "guarantee of a defense" (capital growth, promote development), meanwhile, from the "prudent fiscal policy and tight monetary policy" to "proactive fiscal policy and loose monetary policy". The proactive fiscal policy, such as increasing government spending tax cutting was Implemented to increase the disposable income of individual residents, and to encourage consumer spending.Meanwhile, the central gave out funds about four trillion to stimulate economic recovery by the local infrastructure. This four trillion only plays a small part of the role, so the rest of the financing must completed by local government. Because of the active fiscal policy, the scope and intensity of government finance collection is limited, then the amount of revenue is basically overwrite the existing expenditure, which makes local governments in the saturation. Just in this situation, local government investment and financing platform company model appears. It acts as the legitimate identity of the local government, gets the fund from banks or other financial institutions, and manages details of infrastructure. The platform companies really promote local economic development greatly, financing platform spreads throughout the whole country in a short time. The related risk is approaching. Platform of local government lives by the government-funding, and does not operate its own specific business. It runs with no or only a small amount of physical capital. Once their investment income or the second recovery source change, credit risk will have a ripple effect, the operation of banks and the economy will suffer the latter.This article is focused on risk of projects which is given by local government financing platform, and is demonstrated with specific data and specific bank analysis, then summarizes the risk response strategies.Paper is divided into five parts, the introduction and body of the four chapters.First part is the introduction. This section details the purpose of this study and research ideas, then analysis the main direction and research methods. Through the study of credit risk in the project on research and financing platform for the government, it clear up the further Analysis point and problems.The second part reveals the background of local government financing, development stage and the situation. This section puts out part of the terms in "General Rules on Loans" "Budget Law ", "Guarantee Law ",which give local government finance lots of legal constraints. then, guides the need of platform for local financing. Platform do play an important role in promoting economic development, but the amount of platform and the volume of bank soar after U.S. subprim emortgage crisis. So, some study pay attentions to the stress of project risk given by the platform.The third part reflects the project risks of government financing platform from three aspects:Firstly, self-government platform project financing business risks:shortage of capital, inefficient use of project funds, long period of time does not produce obvious economic and social benefits. Project loan period is long and high concentration. It brings security and liquidity risk. Nonstandard use of project funds, repayment risk of the project.Secondly, commercial bank risk management:Commercial bank acts as the main risk assessment in the evaluation process,and suffers such risks:customer ratings in the absence of credit information, credit rating in the confusion after the flow of project funds, banking and information asymmetry between the government and non-bank resources.Thirdly, risk of government financing platform company:Corporate governance, project management, financial operations and other risk control. To a certain extent, the local financing platform stimulus the establishment of development projects, but in a short time,platform surged with lower quality, it is necessary to attach great importance to the project company's assets and liabilities conditions, financing entities, project financing capacity and mode of operation at risk, this is the root of bank financing platform risk.In addition to these aspects, the credit guarantees, financial position and changes in national policy also take instability to the bank.The fourth part is the refinement of credit risk analysis. Land revenue, as the second source of bank platform loans, expanse in the proportion significantly. Fiscal policy and the status of local finance results in the relationship between project and bank credit. Real estate is a major stimulus investment industry, the price of land and real estate also influence the bank's bad loans through platform. beside, The bank's capital adequacy ratio has also changed according to local platform project risk rating.The fifth part takes the Industrial Bank and Chongqing province as a example. the specific loan ratio, the major customers and related loans of Industrial Bank and analyze the importance of platform company in Industrial Bank. As the fourth part gives the relationship between land price and security of bank funds, this part describe the new mode which leads to this relationship:the government put capital to the platform, the price was banded to the project loans and safety of bank. The examples just verify the feasibility of mode and the effect on the bank, given by price fluctuation.The sixth part is mainly measures of government financing platform. It is not enough for projects risk prevention solely on internal risk avoidance and early warning, the government, local government financing platform, commercial banks should work together. This section just summarizes each of their own strategies and mutual cooperation.The difficulty of local government financing is the big environment of platform, so it is useful for government to expand financing channels;bank platform loan risk is caused by the mode of direct financing of platform, so it is also useful for platform company to expand financing channels. these expansion can ease the risk, make platform company work better for the economic development.Local financing platform is the special economic context of China. Risk of local financing platform is accompanied by changes in economic conditions.Lead to the discussion of new issues, I give a systematic and comprehensive analysis of the risk of local government financing platform, from the specific bank and platform companies. risks strategy was summarized by the ratio of local government financing platform.