| Loan concentration is a chronic risk for China’s banking system. Due to moderately loosemonetary policy and four trillion credit which have been extensively issued in year2009and2010,loan concentration risk in China’s banking system is severe enough to draw our attention.Based onthe above background, this article emphasizes on section concentration area which has not beenattached importance by the regulatory authority. By analysis section features of lending and thecauses for loan concentration risk based on annual reports of China’s commercial banks from2008to2012, this article aims to refresh original researches and offer support to the amendment ofcurrent regulatory policies.Firstly, this paper analysis the trend and characteristic of loan in commercial banks from2008to2012. Secondly, this paper measures loan concentration risk by using Herfindahl-HirschmanIndex This paper investigates the relation between loan concentration and commercial banks’ riskand benefits by collecting61Chinese commercial banks’ annual reports in five years. Theregression results demonstrate significant positive correlation between section concentration ofloan and bad loan rate. While loan concentration impair the profits of five state-owned commercialbanks and twelve share-holding commercial banks significantly, but it has no remarkable effect oncity commercial banks.According to empirical results above, this article propose four ways to prevent loanconcentration risk. Firstly, regulatory authorities should beef up inspections of loan concentrationrisk by expanding the definition of loan, designing certain supervision index as well asnational-widely promoting IRB method. Secondly, legal system of loan concentration should berefined. Thirdly, social credit system should be built up which will benefits the whole financialsystem. Lastly, the internal administrative control of commercial banks should be strengthen toprevent major shareholders from undermining the company. |
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