A Study Of Credit Risks Measurement And Management Of China’s Listed Banks With KMV Model

Since the 1980 s, the speeding up of global economic and financial liberalization has become the main trend of the development of the economy. It not only provides unprecedented good opportunities for the rapid development of the financial sector, but also, to a certain extent, brings considerable financial risks. Researches on previous financial crisis indicate that the credit risks are the main causes of bank failures. CBRC data show that in the first half of 2014, the balance of non-performing loans and NPL ratio of China’s top ten listed banks have doubled up. Therefore, credit risks are still important problems faced by China’s listed banks. It is still necessary to study how to improve the management abilities of credit risks of China’s listed banks, and how to fundamentally prevent the happening of the non-performing loans.Based on the theoretical achievements and research experiences at home and abroad, this paper combines the methods of literature research, comparative analysis and empirical analysis to analyze credit risk measurement and management of the listed banks in detail. First, the paper reviews the relevant literature of the credit risk measurement and management, including the research of the definition of the credit risks and the cause of credit risk and credit risk management. We describe the traditional and modern analysis models of credit risk in detail to find out the most suitable the method to analyses the credit risks of listed Banks in China.Second, we define the concept of credit risks, and summarize basic characteristics. On the basis of 16 listed banks’ annual report data, we can come to the conclusion that there exist large potential credit risks in the listed banks. According to the status of the credit risks management, we find that outstanding problems exist in the external environment and internal management of the listed banks, such as the unsound legal system regulation, imperfect social credit system and credit management process, etc. Thus, we analyze the reasons of the problems caused by credit risks management of listed banks from inside and outside aspects, such as the history economic systems, market factors, the concepts and management factors of banks and so on.Third, according to the actual situations of China, China’s listed banks have been in line with the initial conditions of KMV model. This article chooses ten ST companies and ten non-ST companies in Shanghai and Shenzhen stock markets as samples, using the KMV model to analyze empirically the credit risks of listed banks in China and setting different default points to calculate respectively ST and non-ST companies’ default distance and default rates in order to evaluate credit risk status of ST and non-ST companies. The empirical results show that compared with ST companies, non-ST companies has a large default distance and low probabilities of default, and we can easily identify the credit risk situations of two types of enterprises when using the KMV model. The result indicates the default point in 0.25 is more suitable for measuring the listed companies’ credit conditions. The article finally provides advices on how to increase the level of credit risk management of China’s banks and expounds the shortage of the research and its prospect.