Analysis On The Function Of Accounting Information In Bank Credit Decision

As the core of the economic operation, finance plays an important role in national economic development. Banks work as an essential element of finance, the soundness of banks is closely related to the health of national economic, social stability and the happiness of masses. Since the reform and opening up, Chinese bank industry has experienced several decades of development, so dose its management system and mode of operation. With the characteristics of operating the credits, banks hold huge risks in many aspects, therefore controlling risk and reducing the possible related losses are the prerequisite for the sound operation of banks in a long run. Credit risk is the biggest risk that banks face. Analyzing the whole line of crediting which includes investigation, review and issue credit and loan management, each part might contain a certain amount of risk. In order to control these risks, we should highlight the credit decision. A bright credit decision can contribute to distinguishing the high-quality and low-quality customers and controlling risk from the beginning. While because of the information asymmetry, enterprises which enjoy information superiority would hide the true financial information even provide fake information to get maximum credit limits. Such behavior would cause the inaccurate estimation of credit limits, resulting to the huge increase of credit risk. Companies’accounting information is the most important source for banks to estimate. How can banks use companies’ account information to make credit decisions? What are the defects and shortcomings if banks view companies’ accounting information as the only factor to affect their credit decisions? Which financial information should be highly concerned? How to choose non-financial indicator as sufficient supplement to optimize banks’ credit decisions? The questions mentioned above is the main questions the paper will deal with.This paper takes A rural cooperative bank’s credit decision status as example and is divided into seven parts. The first part is the introduction which includes the background, the purpose, the research method, the outline of this paper and the summary of previous studies. The second part is to define and apply the principal accounting information. To analyzes the adverse selection and moral hazard caused by information asymmetry, The third part states the importance of accounting information for credit decisions and the limitation of financial information. The fourth part describes the current status of A rural cooperative bank and its application of financial analyzing. In the fifth part, A rural cooperative bank’s problems in credit decision will be discussed. The possible solutions will be provided in the sixth part. The last part will summarizes the whole paper and propose the conclusion that combining the financial information and non-financial information is an effective way to increase the quality of credit decision.Hope this paper would attract more attention to the useness of accounting information in banks’ credit risk management and provide more theoretical support to the stable development of banks.