Portfolio Credit Risk Measurement In Supply Chain Finance

These days, supply chain finance as a new financing mode hasalready become one of the hottest topics in the academic circles andthe industrial world. It is an entirely new business field which is expandedby the commercial bank for overcoming the development of theindustrial supply chain management. Different from the simpleinternational trade financing service, the supply chain financing solutionis achieved between the commercial banks and their big clients withoffering financing service and other settlement and financial planningservice, which aimed to provide their upstream suppliers with theconvenient of collecting payment and give their downstreamcustomers the payment in advance and inventory financing service atthe same time. Therefore, supply chain finance is really a systematicfinancing arrangement meeting the needs of all member enterprises insupply chain network organization simultaneously. Great developmentprospect and large profit inspire state-owned banks andforeign-funded banks to participate in the competition of the supplychain financial business. At present, domestic and overseas study in thefield of the credit risk measurement of supply chain finance has justbegun, which is always using the credit risk measurement method ofsingle enterprise. Nevertheless, the credit risk measurement of thefinancing enterprise in supply chain financial business is different frommeasuring the credit risk of generally single financing enterprise. Such isthe major characteristic of supply chain finance, that the closerelationship between the loans leads to the high default correlation ofthem and the default contagion. Hence, the default correlationmeasurement of the financing enterprise in the supply chain financialbusiness becomes the key to solve that problem.Consequently, this paper, starting from the angle of the commercial bank, choosing the financing enterprise in the supply chainfinancial business as the research object, centered on the mostimportant question to measure the default dependency between twosupply chain financing enterprises, based on the stock price andrelated disclosed financial data of the enterprise in Chinese automotiveindustry, operating the KMV model, the Copula function and themethod to set up an analytical framework on the portfolio credit riskmeasurement according to default dependency problem, andcalculated by Matlab（R2011a）software, aims to discuss and do theempirical research on the portfolio credit risk measurement incommercial bank supply chain finance. Firstly, the present papersystematically summarizes a series of routes of the process of defaultcontagion among supply chain financing enterprises as a theoreticalbase of the following research. Secondly, we apply the KMV modelcombined with the sample data which has been processed inadvance to estimate the expected default distance and other defaultrisk measuring indexes of the single supply chain financing enterprise.Thirdly, this paper exerts the default dependency analytical frameworkbased on the Copula function method, introducing the defaultdependency structure between core enterprise and other supply chainfinancing enterprises to the process of the portfolio credit riskmeasurement in commercial bank supply chain finance and selectingthe most suitable Copula function. Finally, we measure the joint defaultprobability and of supply chain financing enterprises, according tothe selected Copula function. Sequentially, we can estimate theportfolio credit risk in the supply chain financial business moreaccurately to replenish the deficiency of existing relevant research, andprovide useful suggestions to the commercial bank to practise thequantitative analysis or to make decisions of developing supply chainfinance at the same time. The result proves that, using the Copula function to describe thedefault dependency relation between two supply chain financingenterprises, combined with credit risk structure model and method,changed credit risk measurement method of single enterprise to theportfolio credit risk measurement can catch sight of the contagion partof the default dependency from supply chain affiliate enterprises andimprove the quality of credit risk measurement for the commercial bankto avoid relative risks more accurately and flexibly.