The Research On Applicability Of KMV Model During China's Commercial Banks Measure Credit Risk Of Listed Companies

Credit risk out of control caused the US subprime mortgage crisis, and the US subprime mortgage crisis caused the global financial crisis which brought a great impact on the economic development of countries in the world.After that, banks began to focus on the systemic effects of credit risk and start to improve credit risk management of commercial banks from the bank's internal supervision and external management.Based on the Basel Accord and combing with China's specific conditions, China's banking industry developed "The core indicators of Commercial Bank Risk Regulation". Among them, regulatory indicators of credit risk include three types of indicators, namely performing asset ratio, single group customer credit concentration, and all related degree. The conditions about Credit risk management of China's commercial banks need to meet the requirements of the relevant indicators.The development of China's commercial banks faces severe external environment. First, the economic development has entered a "new normal" and overcapacity enterprises and the "zombie companies" appear whose loans become non-performing loans of banks. Through analyzing the situation of the balance of non-performing loans, non-performing loan ratio, coverage ratio of commercial banks, as well as the industrial distribution about non-performing loans, we can find that balance of non-performing loan and non-performing loans rate of China's commercial banks rise. From the perspective of industry distribution, some industries have large balance of non-performing loan and high Non-performing loan ratio, such as Manufacturing, Wholesale and retail trade, Agriculture, forestry, animal husbandry and fishery, Real estate, Building industry And Mining industry. Secondly in the era of Internet+, Various Internet financial platform emerge. Facing the shunt of customer resources and channels, commercial banks need strategic transformation In the case of controllable risk. Finally, after the RMB join SDR, China's commercial banks, especially commercial banks that have transnational business, will face more complex international financial environment.Due to special nature of our economic system, credit risk of commercial banks has general characteristics, but also has its particularity. Theoretical study on the qualitative analysis of credit risk has been relatively mature, but research in terms of credit risk measurement has started relatively late. Affected by the foreign theory about credit risk measurement, China has also begun to research in this area. First, scholars introduced and learned foreign theories and models on credit risk measurement, including traditional credit risk measurement models and modern credit risk measurement models. Second, scholars studied the applicability of these models in China. The main research method is empirical research, building on the traditional models or modern models. Considering current development situation of China's market economy and the corporate default database, at present, many scholars believe that the applicability of KMV model is the strongest in China. It can be used as a way to measure commercial bank corporate credit risk. This paper is based on the economic environment and detailed conditions of Commercial banks non-performing loans. After analyzing qualitatively Chinese commercial banks'own credit risk situation, we do quantitative analysis of the industry when China's commercial banks measuring corporate credit risk, using the KMV model. Using the numbers of distance to default and probability of default, we can make horizontal comparison about the size of credit risk about different industries. Then we can verify whether results from the qualitative and quantitative analyze are the same. At the same time, by longitudinal comparison of2013 and 2014, we want to explore the trend of credit risk about the same industry and to see whether the economic trend is expected to go. So we can further verify the validity of the KMV modelThis paper article is divided into six parts:The first part o presents the background of research, not only including both domestic macroeconomic environment and internal and external pressures banks facing, but also including complex international financial environment. From the perspective of the bank's own steady development, it is imperative to strengthen credit risk management. Given the complex economic environment, combing with the economic status of banks, the paper analyzes the significance of this study from all aspects. Then this paper makes a literature review about Theoretical and empirical studies. So this paper can carry out research more easily by summing up research results.The second part describes the various risks commercial banks facing, and introduces elaborately the concept and characteristics of commercial bank credit riskThe third part introduces the Basel Accord and analyzes China commercial bank credit risk and its basic cause. This section reviews the development process of the Basel Accord, and the effect and the specific regulatory requirements of commercial banks after every correction. On this solid foundation, combing with monitoring indicators of commercial banks, this paper makes descriptive statistics about current credit situation of China's commercial banks and sectorial distribution of non-performing loans. By analyzing qualitative, this paper infers the situation of non-performing loans from China's commercial banks, including the number of non-performing loans and sectorial distribution. Meanwhile, this part analyze s the reasons why commercial bank credit risk will further increase. The reasons include pro-cyclical economic effect, competitive pressure of others and the risk of strategic transformation.The fourth part, based on qualitative analysis, proposes to measure credit risk and makes simple review and comparative analysis about credit risk measurement models. The content is divided into two parts, one is an introduction on early classical credit risk measurement methods, another part is an introduction on modern credit risk measurement models, including the theoretical basis of the model, scope, advantages and disadvantages. Then according to the development status of China's current market economy, the part thinks KMV model is applicable. Thereafter, this part introduces the KMV model in detail, laying the groundwork for the following empirical research.The fifth part is empirical analysis. This part has two purposes. On the one hand it wants to verify the applicability and effectiveness of the KMV model. On the other hand, it wants to verify whether the measure is consistent with previous qualitative results. There are two types of sample data, all comes from Wind database. This paper selects A-share from Shanghai Stock Exchange and Shenzhen Stock Exchange. One part contains 30 companies, divided into ST companies and non-ST companies. The other type contains more companies, namely 94 companies in 2013 and 89 companies in 2014. By using Excel, Matlab and other mathematical tools, this part can get the value and volatility of asset, further can get the distance to default and theoretical probability of default of each company which can be used to compare credit risk. Finally, this part includes that the KMV model is valid, credit risk of different industries is different and results are consistent with macroeconomic trend.The sixth part of this study makes relevant recommendations on credit risk management of commercial banks, from the perspective of the external environment, regulatory and Commercial Bank, such as strengthening the construction of credit database, strengthening the construction of capital market and so on.