Research On Risk Management Of Commercial Banks’ Off-balance Sheet Activities

In recent years, accompanying with financial globalization and innovation, commercial banks are facing many unprecedented challenges. For adjusting itself into such financial environment, commercial banks’operating model has changed. Because it costs enormous capital reserve to gain little profit in traditional deposit-and-loan business, commercial banks are focusing on off-balance sheet activities for its profitability and its request for capital reserve at inverse ratio.At abroad, western commercial banks had put the off-balance sheet activities as a profit growth point and also a way to solve the developing problems. Through off-balance sheet activities, it could reduce the operating costs, increase profits and avoid risks. This is because that, on one hand, off-balance sheet activities used little own or operating capital which may avoid the capital adequacy ratio requirements and deduce the operating costs; on the other hand, banks could gain adequate handling charge and commission fee by off-balance sheet activities; otherwise, in the foreign exchange market, stock market, bond market and financial derivatives market, banks could also gain high revenues by using all kinks of off-balance sheet activities in flexible way. Through off-balance sheet activities, western banks’income are increasing rapidly. While in domestic commercial banks, for its fixed structure in traditional deposit-and-loan business, creating newly business to gain more profit is becoming an new challenge for them.Since1980s, our off-balance sheet activities have made great strides in not only scales but varieties as well. However, we should have a clear understanding that off-balance sheet activities is a double-edged sword. Despite of its risk avoidance, by the slightest mistake in using it may cause invaluable damage for commercial banks. Such as "Notice on Normalize Bank-and-Trust Financial Cooperation" published by CSRC in2010. This NOTICE furthermore put several relative norms on bank-and-trust financial cooperation. NOTICE claims that banks should forbid its operation on open trust products, and made more restricts on highly risky business as the private company equity investment. Such movements are mainly focused on the " hidden risk on banks’off-balance sheet activities" accompanying with enormous cooperation between banks and trusts, which has been lifted as major risk facing for the commercial banks by CSRC. Therefore, we can see that risk regulation on off-balance sheet activities is facing severe problem and it needs rectification and reform most. The paper starts with basic theory on risk and its management of commercial banks’ off-balance sheet activities, and give relative risk managements policies on all kinds of risks respectively. Furthermore, it put several suggestions on risk control in our commercial banks by analyzing the risk managements experience at home and abroad.