Risk Management Study Of Guarantee Circle In Commercial Bank

On November3rd,2003, the sudden disappearing of AA, chairman of Xinjiang Hops Plant Ltd., Co (code600090) led to an investigation which revealed a secret External Guaranty worth of1billion RMB. This incident, named "Hops Plant incident", later resulted in a irreversible Limit Down of the company’s stock. Adding to this misfortune was the collateral damage upon several other listed companies in the Xinjiang Guaranty Circle as it revolved around Xinjiang Hops Plant Ltd.,Co, thus Xinjiang’s guarantee chain tumbles and huge financial crisis ensued.Two theories are heatedly discussed around the cause of Guaranty Circle, one of which maintains that national policies should be held responsible while the other blames bank policies. The former theory mentions that China’s economy has been over fuelled with the4trillion yuan of investments in2008, and the increasing market demand has propelled enterprises to expand blindly, making financing and scale expansion top priorities. Large amount of guaranteed loan has floated to many enterprises under a rather easy Security Guarantees Policy from the bank. The culprit of many closed-down enterprises with their bosses on the run is the excessive products, market saturation and the outburst economic crisis as well as the bank’s loan collecting policy which guarantees some expenditure while reducing others. The former theory believes that the bank policies are to blame as the eased currency policy has lowered the demand of risk control regarding business loan. Funds have been raised by enterprises that are extensively operated with inadequate financial capacity or mortgage and hypothecation.Currently, the phenomenon of Guaranty Circle is rather a momentum, posing a huge threat to Bank Credit Asset Security as the financial risks accumulate, thus calling for the vigilance from finance and supervision institutions.The example being analyzed in the thesis is Weifang Guaranty Circle which revolves around Shandong Seadragon Ltd.,Co. A comprehensive research of Weifang Guaranty Circle is conducted, using Feature Extraction Method, Comparative Reference Method and Statistics Analysis, expected to figure out the cause and the features of Guaranty Circle, thus providing experience to risk control of commercial banks. In this thesis there are six chapters, among which the first briefly introduces the content, significance and methods of the research; the second introduces relevant researches from both domestic and external academies; the third explains the categories and features of Guaranty Circle; the forth introduces how to recognize and control risks; the fifth researches in depth of the damages and the way to overcome; the last chapter draws a conclusion and provides suggestions for commercial banks as to address risks.