Macroeconomic And Bank-specific Determinants Of Credit Risk In China’s Banking System And Their Macroeconomic Effects

The outbreak of US financial crisis makes people aware of the dangers of creditrisk. Credit Risk not only affects banks ’ profitability、stability and competitiveness,but in some cases could even attack the health of the financial system, which willaffect the real economy of a State and result in a financial crisis. Since the Reformand Opening, we have enjoyed a rapid development in the banking industry as wellthe national economy. However, there is a great risk with the quick development. Thecredit risk of our country has always been at a high level. Therefore, the research onthe determinants and macro-economic effects of credit risks in china is of greatsignificance.Firstly, the paper describes the current situation and characteristics of credit riskin Chinese banking industry. Secondly, the paper analysis the macro-economic factorsand micro-banking factors’ influence on the credit risk from the qualitativeperspective. Thirdly, the paper establishes a Dynamic Panel Data model and a Panelsvector Autoregressive models (PVAR) with the macro-economic data and themicro-banking data to examine the determinants and macro-economic effects ofnonperforming loans rate in the Chinese banking sector. The result shows that bothMacro-economic factors and Micro-banking factors are determinant of credit risk.There is a pro-cyclical nature in the credit risk in Chinese bank industry. The creditrisk will decrease about2%when the GDP growth rate crease1%, so as CPI、Moneygrowth rate. The study also shows that The macro-economic effect of credit risk inour country is not significant. The special financial and economic system of ourcountry can give some explanation, Government’s fiscal finances and the existingcredit structure will weaken the macro-economic effects of credit risk.