Risk Management Of Short-term Commercial Paper In Commercial Banks Based On PanGang Group CP Case

Since the reform and opening up, debt financing developed rapidly in China, which means the financial market structure has changed. After 2005, eligible enterprises are allowed by the regulators to issue short-term commercial paper in the inter-bank bond market. The regulators also required that only qualified institution investors can trade in the market.China's financial market has long been biased on long-term financing, while short-term financing more rely on bank loans. However, the emergence of short-term commercial paper provided more chooses to China's corporations. It is an important progress of the financial market. Similar to the U.S. commercial paper, China's new short-term commercial paper has shorter period which less than 360 days. Meanwhile, the financial cost of short-term commercial paper is lower than the cost of bank loans for enterprises.In this paper, the anthor conducts an analysis of the development of short-term financing market in China and the United States. This paperr shows the different characteristics of the market. Since the U.S. commercial paper market is more completed, the author focus on the development path of U.S. commercial paper market which may helpful. This paper also highlights how the U.S. security companies and commercial banks underwrite the commercial paper and manage the risks.After that this paper begins to analyze the potential risks which Chinese underwriters faced as they are also investors. There are mainly two kinds of potential risks:credit risk and liquidity risk. Credit risk refers to the risk of payment. In China, commercial banks are difficult to judge the credit risk as enterprise's non-standard disclosure of information and the reliability of financial data. Liquidity risk includes the risk of payment to investors and the implicit guarantee payment risk. Commercial banks should be concern on the implicit guarantee because it has became a part of the deal.Based on the risk analysis, this paper issuances a example of the short-term commercial paper of Panzhihua Iron and Steel Group to illustrate the specific analysis of different risks and the response to the problems. Bank of China focuses on the analysis of short-term solvency of issuers, including pay records, bank and other customers with the credit situation. The analysis of the principal loan amount, the liquidity of the assets and whether the repayment period is suitable to pay the principal and interest is also critical. Through a systematically survey with short-term solvency and long term economic analysis, the commercial bank can determine the yield which is more suitable. Finally, this paper believes that as the trends in the U.S. commercial paper market, asset-backed commercial paper is a possible way to China's short-term financing market because this new financial tool may skillfully solve the credit problem for Chinese commercial banks, although it still has many limitations.This paper analyzes the management of risks of short-term commercial paper in China and expressed the theory in the market with practice. The author suggest to introduce Asset backed commercial paper as a better method of short-term commercial paper. In this paper, case studies, comparative analysis, empirical research methods are used to evaluate the risk management of commercial paper for commercial banks in China.