Study On Credit Risk Metric And Management Of Chinese Commercial Bank Based On The KMV Model

Global financial crisis swept the whole world in the latter half of2008.Consequently, international economic stimulus packages were carried out insuccession and China was no exception. China prompted a four-trillion economicstimulus plan with various accelerated local financing platforms, which turns out jumboloans with unpredictable potential risks. In the meanwhile, China Banking RegulatoryCommission launched timely Chinese “BaselⅢ” to impose national commercial bankswith a brand new regulatory environment. Therefore, commercial banks are in urgentneed of a strengthened risk management in particular by means of effective tools toverify and measure corporate credit risk exposure.As one of many credit risk measurement models, KMV model serves as a majorobject for simple credit risk measurement in previous investigations with relevantparameter settings following western empirical values. At the same time, records inlongitudinal tests of this model’s credit risk verification remains blank.The thesis conducts a comprehensive investigation of KMV model’s feasibility incredit risk verification of Chinese listed companies, especially to a key aspect, thesetting-up of default point based on current commercial bank risk situations in a newregulatory environment. Firstly,36ST and non-ST Shenzhen companies listed in Ashare market are selected for a three-year default distance estimation in separated annualsections of2010to2012in addition to9default points for comparison. Experimentresult indicates that KMV model has witnessed an accelerated verification capacity incredit risk measurement in a context of full stock circulation with research records ofverifying credit risk in ST and non-ST companies. In the meanwhile, it derives that thenational optimal default point equals short-term liabilities plus0.1times long-termliabilities. Weight in China’s long-term borrowing default point is lower in empiricalvalue than in western countries.Based on current risk management of national commercial banks under a newregulatory environment given the national credit risk situations, author of the thesiscontends that KMV model can be applied as a tool for listed corporate credit riskmeasurement for commercial banks. Provided with accessible relevant data, KMVmodel is not confined to listed companies but also applicable to non-listed companies.In the meanwhile, the model also requires further completion and data fulfillment to improve the measurement accuracy when Chinese quantitative analysis of credit riskmeasurement is still on the initial stage. Besides, national commercial banks still need toenhance external environmental construction and internal management to intensify riskmanagement.