Research On Credit Risk Appraisal Of Commercial Banks Based On Macro Stress-testing

The commercial banking industry is always accompanied with risks, among whichthe most severe one is the credit risk due to its easy contagion. With a central role ineconomic development, banks are closely related to all industries. As a consequence,once the bank credit risk arises, other industries will suffer a lot, and the economicdevelopment will be undermined. With a further economic globalization, the ties ofworld financial markets are much closer, thus the credit risks spread much easily and aremore destructive than ever. Thus it can be seen that the credit risk management andevaluation is a major task to all commercial banks and financial supervisory authorities.Based on the relationship between macro economic factors and credit risks ofcommercial banks, this thesis analyzes the inherent ties between the above two bymeans of theory of financial fragility and theory of business cycle. Here, macro stresstesting method, one of the important measurement approaches with international fame isemployed to evaluate the credit risks of China’s commercial banks. The banking systemoverall non-performing loan ratio will be taken as the risk measurement indicator,economic indicators that will affect credit risks will be chosen according to experiencefrom home and abroad, and then suitable economic indicators will be selected forempirical research which can be conducted by following the three steps below: first,quantify the relationship between commercial bank non-performing loan ratio andmacro economic indicators according to regression analysis method; second, create areal situation for macro stress testing with the combination of theory analysis andresearch experience from home and abroad; and lastly, conduct the testing. The findingsshow that credit risks are greatly influenced by GDP, medium and long term loan rate aswell as banking business index, among which the influence of GDP is the largest. Theresults also indicate that the resistance capacity of China’s commercial banking systemis too weak during the macro economic shocks. Besides, the capacity of different typesof commercial banks varies a lot in different levels of shocks.According to the empirical research and the macro stress testing results, somesuggestions are proposed for China’s commercial banks and financial supervisoryauthorities respectively. As to the commercial banks, they should attach greatimportance to the overall management of credit risks, and keep an eye on the influenceof systematic risk on banks; while to the financial supervisory authorities, they should keep the overall bank credit level in control and have an analysis of the credit riskcontrol by different types of commercial banks case by case. With the concerted effortsof the above two parties, the resistance of China’s commercial banks against creditrisks as well as their comprehensive competitiveness will be enhanced.