Credit Risk Analysis And Empirical Study During Developing Village Banks

The gap between the supply and the demand of China’s rural financial market is enormous. In orderto increase the supply ability of rural finance, the China Banking Regulatory Commission issued aseries of policies and measures to encourage the development of new-type rural financial institutions,which is mainly in the form of village banks. The village bank Implement modern enterprisemanagement mode, focus on the "agriculture, rural areas and peasantry" personal and Enterprise.Compared with other large commercial banks, the village banks suffer more prominent credit risks dueto their small scales which result in the high cost of operating, difficulty of controlling the use of theloans and etc. The purpose of this study is to research how to prevent and control risks, and how toachieve sustainable development, to provide feasible proposals for the village banks’ credit risksprevention.The research is carried out based on the theme of village bank development and credit risksresearch, which includes:1. Characteristics, current status and problems of village banks;2. Villagebank’s credit risks and cause analysis;3. Measurement of village bank’s credit risks;4. An empiricalstudy of the village bank’s risks measurement using the micro-enterprises’ loan data from the Samplebank during2010-2011.The research lead to the conclusions:1. The imbalance between the supply and the demand in ruralfinancial market is the root cause of village banks’ emerging, and the village bank is a viable method todeal with the contradiction between the supply and the demand of rural finance and a valid extension ofthe commercial banks in rural markets.2. Credit risks is the most severe problem in the sustainabledevelopment of village bank. Lack of collateral, the characteristics of high risk, information asymmetryand moral hazard problem are the causes of the credit risks of the village banks.3. CreditRisk+is themost suitable models for rural banks’ credit risks measurement, considering the availability ofagricultural loan data and capacity to meet the model assumptions.4.Empirical studies have shown thatoverall development trend of rural banks is good and the means of risk control referred tonon-agricultural and part of the agriculture-related loans is very effective. Only part of theagriculture-related lending, especially the lending aiming to support and benefit agriculture, rural areasand peasantry need to enhance their ability of risk control.Based on the above research, policy recommendations are:1. It contributes to long-termdevelopment of rural banks to promote rural financial reform and to improve rural financial status quo.2. Establish a sound scientific credit record and evaluation system in the rural areas in a timely manner.3. In some conventional projects, the village banks need to operate it with the real attitude of enterprisesand less government intervention.4. In the project about supporting and benefiting agriculture issues,the authorities should increase subsidies of the agricultural loan and therefore reduce the bank risks.