A CPV Model-Based Study Of The Risk Of Real Estate Loans Of Commercial Banks In China

The welfare housing system has gone to the end since1998when the policy of housing reform began to carry out. Since then, real estate became market-oriented gradually and its pace of development was significantly improved. After2005, especially, the sales of real estate developed rapidly with an average annual growth rate of.... As we all know, real estate is a capital-intensive industry and has a fund shortage during the process of construction of real estate project. Because of the incomplete of the capital market and the lack of financing method, bank loans became the most important way to financing for real estate industry. The continued prosperity of real estate industry in recent years has driven real estate companies to expand the scale of investment. For that reason, these companies need more funds from commercial banks. Real estate companies have a good performance in balance sheet, which benefited from the prosperity of real estate industry. Banks are willing to send credit to borrowers who have a sound financial position and a large demand of funds in order to make more profit from interest income. Therefore, since2005, the amount of real estate loans of commercial banks has constantly increased, so has the proportion of real estate to total outstanding loans. For the purpose of restraining the too fast growth of real estate market, the government started to implement a series of stringent regulations. These regulations weakened the repayment ability of real estate companies and individual buyers, which have the risk of real estate loans of commercial banks began to show up and accumulated with the extension of time of regulation.Credit risk management of commercial banks in China started late and developed slowly, and it is still in the level of asset-liability indicator management and position match. Several risk management problems still exist, such as the unstandardized process, inadequate risk awareness and the imperfect internal control mechanisms. Given the reality of that real estate enterprises in China is highly dependent on banks loans and the level of bank risk management is low, it is necessary to introduce foreign advanced risk measurement model, research the real estate loans of commercial banks, find out the factors which affect the risk of real estate loans and take effective measures to prevent risks.CPV model is one of the most common risk measurement models currently. The author will test and vertify whether CPV model is applicable for China. If CPV model can well predict the default rate of commercial bank real estate loans, it can be used in the future management to forecast the default rate of real estate loans, develop strategies to cope with risks, and reduce the losses which may be brought to the banks by the risk of real estate loans.Empirical analysis is used in this paper. Firstly, in accordance with the requirements of the basic idea of the CPV model,10macroeconomic variables,24sets of data are selected from the first quarter of2006to the fourth quarter of2011. In order to ensure that the data can truly reflect economic situation, price adjustment and seasonal adjustment are used to adjust the data. For the problem of multicollinearity, variables are screened by SPSS software.5variables are selected finally. Then use Eviews software and make regression analysis to the5macroeconomic variables and get the equation of CPV model. Finally, put the data of fourth quarter of2011into the equation to caculate the forecast default rate and compare the forecast default rate with the real default rate. According to the size of the two data gaps, we can judge whether the equation can reflect the real situation well.The results of empirical analysis prove that default risk P of commercial bank real estate loans are determined by CPI, money supply, one to three-year lending rate, deposit reserve ratio and100U.S. dollar against the RMB exchange rate. Among all these five factors, one to three-year lending rate on commercial bank real estate loan has the greatest impact on default rate of real estate loans. Therefore it is effective to use CPV model to predict the risk of real estate loans of commercial banks.After we got the CPV model which can be applicable to the credit risk of commercial banks real estate loans in China, the author suggests the commercial banks improve the ability to resist risks and risk management from establishing banks’internal risk measurement model, establishing the real estate industry risk warning system, improving the bank system of internal control and cases prevention, focusing on personnel training and collateral disposal.Innovation of this paper:Firstly, according to basic idea of the CPV model, the author selected10economic variables which can cover the influencing factors of real estate loan default rate and overcome the shortcomings of too few selected variables in previous studies. Secondly, after adjusting the10selected variables, backward selection method was used in variable selection which made the variable selection more scientific and overcame the shortcomings of random selection in previous studies.The inadequacies of this article:In the CPV model, national and industry credit transfer matrix is not fixed but need to make adjustments based on default rates. However, considering the author’s ability and the data available, this part is not further discussed, this will be the direction of further research for the author.