The Forecasting Of Commercial Banks’Credit Risk Based On ARMA Model

With the rapid growth of credit business, the credit risk of China’s commercial banks increases. Some of the loans are difficult to recover and the trust mechanism is seriously threated. Therefore, the thorough study of credit risk of commercial banks based on ARM A models can better forecast the future trends of credit risk in order to take timely measures and guide the healthy development of the commercial banks in the long run.In this paper the current situation of commercial banks’credit risk is analyzed and the high rate of non-performing loans is thought as the main cause of credit risk. In addition, non-performing loan ratio is regarded as an extremely important indicator for regulating the credit risk of commercial banks by China’s Banking Regulatory Commission. As a result, the future trend of non-performing loan ratio is analyzed in order to forecast commercial banks’credit risk in this paper.The quarterly non-performing loan ratios of China Merchants Bank and Shanghai Pudong Development Bank are selected as representative time series to accomplish the process of analyzing, modelling, testing as well as forecasting respectively by the means of MATLAB programming. Finally, policy recommendations and proposals are presented for this problem.