Research On The Relationship Between Credit Rating And Default Risk On China P2P Platform

Asymmetric information is the main problem of peer-to-peer(P2P) lending, which means that lenders can’t fully grasp the information of borrowers. Asymmetric information will cause adverse selection and moral hazard. In theory, we can relieve these adverse selection and moral hazard by examining the borrowers’ conditions. However, in the internet environment, the lenders have no method to contact borrowers, which makes it difficult for investors to verify the information of borrowers. As for traditional commercial bank, they can add credit by mortgage and due diligence. While, as for P2 P lending platform, they can only rely on their risk assessment model to assess the borrower’s credit rating and the credit rating is the base of credit risk management.Previous scholars spend a lot of time to study which factors significan tly affecta successful loan. However, few research studies the reason of the borrower default. In order to study the relationship between credit rating and default risk, th is paper divides P2 P platform into three categories and select renrendai.com as the research object. Using the web crawler technology, we obtain the sample data. We study borrowers’ default behavior by non-parametric test and binary logic regression model. Futhermore, in order to study how the credit rating impacts borrowers’ default rate, we introduce Cox proportional hazards model which is often used in medical statistics. Wr compare the survival time of different credit ratings loans to examin whether the credit ratings can reflect the borrowers’ default rate accurately. At last, we also study the relationship between credit ratings and default risk by comparing security deposit and the default amount.This paper finds that the borrowers’ credit rating given by P2 P platform has significant effect on borrowers’ default rate. However, it can’t reflect borrower’s risk of default accurately. That’s to say high credit rating is not corresponding to low risk of default. At the same time, the spread between security deposit and default amount illustrates the problem from sides. Based on the whole paper, we believe that the P2 P platforms should assess the lending risk case-by-case and can’t judge the default risk of borrowers by their credit ratings literally.