Research On Credit Risk Management Of Chinese Commercial Banking Based On KMV Model

The commercial bank system has played an increasingly significant position in the modern financial field. Meanwhile, there are various kinds of risks, which couldn't be thoroughly eliminated, especially including the destructive market risk and rising operation risk. However, the credit risk is the most serious risk being considered by banks. In addition, according to the Basel III, the management of credit risk should be the core content in the commercial banking supervision system. It's obvious that the economic conditions not only contribute to the changes of prospected development but also impact on the behavior of Commercial Bank's debtors. Furthermore, because of the information asymmetry between banks and debtors, there has been a rising possibility that moral hazard does occur to have a negative impact on the financial system.This paper mainly introduces the substance and characters of credit risks, as well as 4 popular modern assessment models of the credit risk. According to the comparison among these models, it's proved that the KMV model would be the most accurate one to measure the credit risk of the commercial banking system in China. The option pricing theory, as the basic theory and principle, have been minutely discussed and studied in this research. In specific, both assumptions and parameters of this evaluating model have been explained and considered in particular. What's more, it's apparent to learn the calculating process of the KWM model in this research. In order to optimize this model in Chinese banking system, all parameters have been amended logically. The aim of this essay is to verify the practicability of KMV model about evaluating the Chinese special situation. As a consequence, this study selects both 41 listed companies under special treatment and 41 normal public companies, from the China A share market in 2014, as the example. According to the different financial figures and the history stock prices in the specific research year, it's undoubted that the KMV model actually could be a proper methodology so as to assess the credit risks in Chinese commercial banking system. Last but not the least, this research puts forward many reasonable suggestions for supervision organizations to manage the credit risks.As a summary, this essay treats the practicability of KMV model for the Chinese market as the research emphasis. In addition, the public company customers' credit risk management under the KMV model should be the crucial portion in the study. According to the amendment of the KMV model under the Chinese banking criteria, this essay is supposed to increase the practicability of the research methodology and to provide references for the establishment of the credit risk management system.