| The breakout of International Financial Crisis leads to downturn of our economy. In order to cope with financial crisis and spur economy to revive,4000 billion investment project and easing monetary policy are taken, and a new-round credit expansion appears at the same time. It is true that putting in too much credit helps to overcome the conflicts brought by International Financial Crisis, but we should see some hidden danger brought by credit expansion, in which increase of non-performing loans is one of the representations. Putting in much credit and money causes the presence of inflation and asset price bubble in our country. As a result, our government begins to carry out macroeconomic regulation and control in 2011, and the credit growth rate slows down at the same time. The slow down of credit growth rate will make the non-performing loans hidden in the expansion period to appear. Non-performing loans of banks begin to bounce. There is certain lag between credit expansion and appearance of non-performing loans, that is to say there is a positive, although quite lagged, relationship between them.The theoretical analysis in this paper follows the principle from general to special. On one hand, we start from general theory and elaborate how credit expansion leads to the increase of non-performing loans in the future, which can be explained by decline of credit standard, poor loan management, burst of asset price bubble and institutional memory. On the other hand, the mechanism is elaborated how the new-round credit expansion affects non- performing loans of commercial banks in our countries. The new-round credit is put into local government financing platform, excess capacity industry and property. We analyze what credit risk these three kinds of loan will bring to banks.Following the previews theoretical analysis, in the empirical part of chapter 4, based on the period of 2003-2012, we choose the sample of 30 commercial banks in China, and construct dynamic panel model to analyze the dynamic relationship between credit expansion and non-performing loans rate using GMM. On the selection of variables, we add loan growth rate lagged 2 to 4 to indispensable variables and select real GDP growth rate, real interest rate, inflation rate, asset relative size, return on net assets and equity ratio as control variables. We conclude that the coefficient of loan growth rate lagged two years is negative, while the coefficient of loan growth rate lagged three and four years is positive. Besides, the coefficient of loan growth rate lagged four years is larger. This suggests that the initial effect of loan growth will reduce non-performing loans rate, but the rate will increase three or four years later in the long run and become much larger four years later, which can cause adverse effect to the whole banking system.Based on the theoretical and empirical analysis of the question how credit expansion affects non-performing loans rate in our commercial banks, we pose many referenced suggestions to operation and management department and regulation official about how to reduce credit risk and non-performing loans. Commercial banks should prevent important field risk strictly and get rid of storage risk properly; adjust credit structure and prompt economic structure to change; strengthen credit administration and find weakening soon. At the same time, regulation department should strengthen regulation to realize that loans grow steadily. In this way, the level of non-performing loans in our banking system can be reduced and credit risk can be controlled effectively. |
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