The Applied Research On Internal Rating-based Approach Of China’s Commercial Banks

Credit risk management is not only one of the most important elements in riskmanagement, but also the guarantee of stable development of modern commercial banks.With the development of financial industry and the continuous improvement of financialsystem, countries around the world increasingly attach importance to measurement andcontrol of credit risk issues. Basel Committee has made a series of regulations which wasvalidated in practice. They have been validated by many countries because of itsscientificity, rationality and operability. The Internal Rating-based Approach in Basel IIpointed out the direction of credit risk management, and banks from all lands are activelyinvolved in the construction of the internal rating system. The contents of Basel II havebeen actively put into effect since we joined the Basel Committee. For China’s commercialbanks, IRB is not only the effective way to improve our risk management, but also theimportant means of boosting international competitiveness.This article focus on both the change of credit risk management and capital regulationin Basel I、II、III and the description of the framework, principles and requirements of IRB.From the angle of enterprise development strategies, the paper carried out the SWOTanalysis of IRB in China’s commercial banks. Combining experience of foreign commercialbanks and present situation and problems of China’s commercial bank’s internal rating, itprovided some tactics and proposals for Internal rating system in China’s commercialbanks.This paper was divided into six parts. Chapter1: It introduced the background andsignificance of this thesis, as well as domestic and foreign rating on IRB of the research. Italso discussed the research methods and ideas. Chapter2: It explained the change of creditrisk management and capital regulations, introduced the definition, basic elements,appraisal procedures, principles and the framework of IRB, and illuminated the basicrequirements of using IRB and measurement of the fundamentals for commercial banks.Chapter3: It carried out the SWOT analysis of IRB in China’s commercial banks. It alsoconstructed a SWOT matrix, analyzed to draw conclusions, and created SWOT matrixanalysis model. Chapter4: It described the IRB system of foreign commercial bank andfound the saving graces in the rating system of Citibank, HSBC Bank and Japan’s FujiBank. Chapter5: It analyzed the gap of internal rating system in China’s commercial banks.First, it generalized the overall situation of IRB system, including two aspects of retail andnon-retail credit risk. Then, from both the micro and macro aspects, it introduced the difficulties which commercial banks in China put into effect. Chapter6: It provided sometactics and proposals for Internal rating system in China’s commercial banks. This part putforward some suggestions and methods involving improvements in technology and system,database construction, risk measurement model, construction of the professional team andpolicy guide and so on.