Asset Scale’s Effect And Mechanism Of Action On The Line Of Credit Under The Group-lending Mode

Group lending is favored by the market and put great premium on by commercial banks especially joint-equity commercial banks. But at the same time, some shortcomings are also discovered, for instance the gradually growing lack of new high-quality customers and the hardness in dealing with customers of different scales from the same group. The key to these shortcomings however, is to make clear a universally applicable standard to discover and evaluate customers and reasonably grant credit to them. Here considering the scale factor is indispensible.To settle the problem above, this article employs the game theory. As for the selection of models, a non-repeating game model is adopted here, because a group-lending group is not a permanent one, and the punishment for defaulting comes not only from inside the group alone. To take the effect of expected future development on the strategy of firms into consideration, this article applies the expectations of firms to their default costs. Firstly by analyzing the equilibrium in different conditions, we obtain composition of the default cost. Then assumptions are released step by step, so that the default cost will be gradually closer to the reality that firms are met with in practice. Based on that then, the scale factor is extracted out of the default cost, and regardless of factors other than default cost, the effect of scale factor on line of credit is presented. The last phase of the study is to take into consideration the ability of refunding and the strength of guarantee, then comes to a conclusion that, all factors considered and credit risks controlled, the percentage of each single firm’s line of credit should equal the percentage of its scale.This main conclusion may help banks grant credit more reasonably in group lending. Along with the main conclusion, several other factors and preconditions are drawn out, for example the expected rate of return, the strictness of punishment by society and some relationships between firms. These also contribute to the standard of evaluating customers, via which more new potential customers and be discovered and screened.The body part of this articleis constituted of five chapters. Chapter one introduces the background, methods and Significance of the study. Chapter two is literature review of the article. Chapter three describes the current situations and shortcomings of group-lending, and raises some solutions for the problems. Chapter four is the analyzing part of this article using the game theory, and draws a conclusion. Chapter five is the part of summary, where conclusions are applied in practice and points to be improved are listed.