Credit Structure And Risk Of Foreign Banks In China

Generally agreed that foreign banks in China are more competitive than Chinese commercial banks in the their innovation and international trade financing and other non-traditional financing business. In matter of fact, the traditional credit spreads are still the main source of profits of foreign banks in China. However, only a small amount of literature carry on the inquisition to these foreign bank’s tradition credit structure characteristic. This graduate degree paper first describes the main feature of credit structure about23foreign banks in China. Then it analyses how the specify credit behaviour would impact the Non Performing Loan Ratio (NPLR), and contribute to the risk of these foreign banks ulteriorly.The bank’s credit structure usually performances in the allocation to various industries, different regions, staggered term structure and other aspects of the funds configuration. Factors that affect foreign banks’ credit funds investing behaviour generally comes from three spheres. First one is macroeconomic cycles, the second is regulatory policies of the host country, and the third one is the own management strategy of the specific bank. After the2008global financial crisis, the chinese government has implemented a quantitative easing policy of4trillion yuan to stimulate the economy. A large number of credit funds flowed to infrastructure-related industry through chinese commercial bank. According to modern portfolio theory, credit concentration is contrary to principles of risk diversification. But driven by the profit chasing nature of capital, such credit allocation seems to always win in the short term, enjoys high returns but assumes low risks.This paper aims to study the credit structure feature of foreign banks in China. Measuring the credit risk is the most direct way to examine its credit quality. We chose non-performing loan ratio (NPLR) as credit risk metrics. Previous analysis showed that static analysis does not significant. We use DIF-GMM to estimate this non-balanced panel data for dynamic analysis. One important discovery is the second lags of infrastructure-related industry allocation of the credit decreases NPLs of these foreign banks in China, although this is not the first industry that credit funds centralized. Then we discovered that foreign bank in Chia take the short-term loan as the main disposition, which comply with the property combinatorial theory about time risk of financial assets. Furthermore, as a universal phenomenon in the bank, related loans has a negative influence to NPLR. But what differet from common idea, personal loans would be more easily increase NPL than company loans.At the last part of this paper, through the analysis on the credit management strategy of foreign banks, we try to offer China’s commercial banks the advises about management system and product innovation strategies.