The Empirical Research On Credit Risk Of Local Government Financing Platform By KMV Model

With the development of market economy, China’s urbanization continues to accelerate. Municipal construction tasks that are saddled by the local governments show a surging momentum, which has the objective of rapid economic growth increasing demand for public goods motivation, but there are still mixed with local government achieve performance indicators. When central government took the reform of implementation of the tax system in1994, coupled with the main eligibility limit from the legal level, local government do not raise funds for financing,local financial strength had been far from being able to meet the funding needs of local construction, which result in a dilemma. Local financing platforms came into being in this particular historical context, from a certain sense, that breakthrough bottleneck of the local government’ difficult position and helps China government successfully curbing the decline of our economy in the1998Asian financial crisis and the2008U.S. subprime mortgage crisis.Because of its function, local financing platform spurt growth. In recent years, the credit risk of local financing platform gradually exposed:the huge debt-service payments have far exceeded the financial capacity of local governments and most local government financing platform do not have a stable source of cash. If the debt is centralized payment, local governments will face serious debt crisis.From the point of view, the county-level platform accounted for more than70%of the total platform in local financing platform structure. Although they have broaden financing channels, a traditional bank loan-based platform also take a main part. It can also be seen that the bank’s risk control and risk early warning measures are inadequate, weak risk awareness, and some easing in lending conditions on the financing platform audit.This article based on all the ills of the above platforms financing loans, analyses how to resolve these questions and to put forward valuable suggestions. It research that from three aspects:strengthen the link through policy regulation and bank risk prevention of platform Loan, regulate its financing process, broaden the financing channels. In order to avoid insufficient explanatory due to excessive qualitative analysis explain, author introduce the improved KMV model in revealing quantify loan default problem on our platform. In details, I confirm the reasonable range of financial expenditure for the platform loan by a case study of Sichuan Province and give the feasibility proposals of management of platform loans..Because the platform for the loan risk factors and the risk types are complex and volatile. The article summarize causes of local platform loan from all aspects, so that the platform risks can be clearly demonstrated and provide some decision makings for our government dealing with debt problems.