Research On The Applicability Of Credit Risk Measurement Of Commercial Banks In China Based On KMV Model

Credit risk is one of the oldest and the main risk of commercial banks, which has an important impact for the banks’ survival and development.Foreign banks have explored how to measure the credit risk accurately for the purpose of effective management. But due to various historical reasons China’s banking industry has paid little attention to credit risk in the early stages of its own development.In recent decades, China’s banking industry has recognized the reality that the credit risk will bring great influence to the development of the bank, thus to supervise and control the credit risk. Credit risk measurement model has been used to measure the credit risk of commercial bank.In June 2004, the Basel committee issued "the new Basel capital accord" formal draft, and new Basel capital accord put forward two methods of measuring the bank the credit risk.One is the standard method, and the other method is the internal ratings-based approach(IRB).The IRB approach for banks pays more attention to the quantitative analysis in the process of credit risk management, by selecting the appropriate credit risk quantification model. The new capital accord recommended the qualified bank by using the KMV model to quantify analysis of credit risk. The KMV model in many banks abroad got very good application, but the KMV model is based on the mature securities market in foreign countries. And it is not sure that the KMV model is suitable for the application in our country.Therefore, this paper tries to explore the applicability of the KMV model in our country′s commercial bank credit risk measurement.The research content of this article is mainly composed of the following parts:The first part is the introduction. This part is composed of the first chapter of this article, it mainly analyzes the background and research significance of the selected topic, and introduces the domestic and foreign research achievements of the KMV model briefly.And this part expounds the full text of the research content, research methods, the shortage and innovation, finally builds the frame structure of this paper.The second part is the credit risk measurement model and their comparison of commercial banks. First this chapter describes the concept of commercial bank credit risk.Secondly, this chapter analyses the measure traditional methods and modern models of credit risk in commercial bank.Traditional credit risk measurement methods include expert judgment method, five-tier classification of loans, and the credit rating model which based on financial indicators. The modern credit risk measurement model include credit measurement technique model(Credit Metrics model), additional Credit Risk model(Credit Risk + model), Credit Risk Portfolio model(Credit Portfolio View model) and the KMV model.We focus on the basic theory of KMV model, and introduce the research methods. Third, we compare the traditional credit risk measurement methods with the modern credit risk measurement model, also compare the different modern credit risk measurement model; Then we compare the applicability of the credit risk measurement model in our country; Through compared we know that the KMV model is the most suitable for measuring the our country commercial bank credit risk. The last content is summary of this chapter.The third part is the empirical analysis of the KMV model. The second part of this paper concludes that KMV model is suitable for measurement of our country commercial bank credit risk, on the basis of this the chapter three quarters use the data of listed companies in our country to carry on the empirical research on the effectiveness of KMV application. First we use the PSM(Propensity Score Matching) method to choose the sample companies for empirical research in this chapter, and we check the KMV model parameters for the setting and correction; when choosing the empirical comparison sample the past articles is highly affected by the human’s subjective, and the selection of the sample will directly affect the results of the empirical. So the objective PSM model is used to choose the empirical comparison sample, and to minimize the influence of subjective factors on the result of the validity of the model. Secondly, this part by selecting sample empirical operation of the company data and the empirical process includes equity market value, and the calculation of the volatility, the listed company default point DP calculation and the calculation of the listed company assets value and volatility. The last of this chapter is the empirical results for analysis. The fourth quarter is the KMV model robustness analysis of this chapter.Using the sample data to verify whether the application of KMV model is stable.Because in china default data is too inadequate to determine the mapping relationship between distance and expected default probability of default, and the accuracy of the theory of default rate is uncertain. So this paper to regard default distance as a result of the empirical analysis. The last of this chapter is a summary of the four research content of, and it can be seen from the empirical study results that using KMV model to measure our country commercial bank credit risk is applicable.The fourth part is conclusion and prospect. Based on the front three parts of this paper, in this chapter the research conclusion of this paper is given. That is through the theoretical research and empirical analysis we know that KMV model is applicable to measure our country commercial bank credit risk. And the KMV model’s the future application in our country commercial bank credit risk measurement is discussed.