Credit Risk Analysis And Management Of Bank’s Credit Asset Securitization

As a financial innovation, asset securitization has been boomed around worldsince forty years ago. It has been highly recognized and expected by the financialmarket as it brings the originator great asset liquidity and effectively disperses creditrisks. We are now vigorously developing capital market. Since the credit assetsecuritization can help to enhance the bank’s asset liquidity, optimize the structure ofassets and liabilities and even make the bank obtain re-invested incomes, thereobjectively exist dynamic factors in credit asset securitization. However, the outburstof American’s subprime crisis in2007serves as a wake-up call to china’s commercialbank’s credit asset securitization which is just underway. The innovative financialinstrument brings a great deal of benefits to the financial market accompanied bycomplicated and concentrated credit risks. Therefore, systematic analysis of creditrisk and careful treatment of credit risk management are very necessary for bank’scredit asset securitization.Bank’s credit asset securitization has grown a lot and account for most ofproportion of securitization in the market. The credit risk hides in all of structuralbody including the participants and the portfolio of assets in the pool. The paperfirstly offers the overall appearance and operating mechanism of the bank’s creditasset securitization through qualitative analysis of the transaction structure andprocess. Secondly, after elaborating the features and transfer mechanism of bank’scredit asset securitization, the paper points out that credit risk from the basic asset inthe pool is the source of the whole risk of asset securitization. Meanwhile, it clearlyshows the quantitative indicators of credit risk are “Exposure at Default (EAD)”,“Loss Given Default (LGD)” and “Probability of Default (PD)”.Among these three,the paper focuses on calculating PD by amended KMV model which is the only ratingindicator for agencies. The text then chooses data from the National DevelopmentBank’s Credit Asset Securitization2008to verify the result of rating. In the end, afterprofound analysis of American’s subprime loan crisis, the thesis makes someconstructive comments for prevention of credit risk from bank’s credit asset securitization in China.