Risk Awareness Of Commercial Banks And Loan Industry Concentration

The phenomenon of credit concentration is wide spread in banking industry at home and abroad,and it has been paid attention by many scholars.The research on the phenomenon of credit concentration is also one of the hot spots in commercial banks’ management.At the same time,the Central Committee of the Communist of China,the State Council,as well as regulatory agencies,all attach great importance to the prevention of systemic financial risk,enhancing the efficiency of financial services for real economy,the public also propose prudent operation for commercial banks.In this background,this paper studies the relationship between commercial bank risk awareness and loan industry concentration,in order to prevent and resolve the risk of loan industry concentration,making rational allocation of credit resources,and promote economic development.Firstly,by reviewing relevant literatures,the paper summarizes the related factors about credit concentration,calculates loan industry concentration degree by using Herfindahl Index and data of 15 listed commercial banks in China from 2007 to 2017.Secondly,the paper uses behavioral finance theory,risk management theory and credit management theory to analyze how risk awareness affects loan industry concentration.Then,by taking excess provision coverage ratio and excess loan reserve ratio as proxy variables for bank’s risk awareness,Herfindahl Index as a measure of loan industry concentration degree,this paper sets up random effects model with semi-annual data of 20 listed commercial banks in China from 2007 to 2017,to make an empirical test.By controlling relevant variables,the results show that there is a significant negative correlation between bank’s risk awareness and loan industry concentration,and it proves that with a heightened risk awareness,a bank is more likely to take loan industry diversification strategy,so it helps to alleviate the phenomenon of loan industry concentration in commercial banks.According to the conclusion,this paper suggests to improve loan industry concentration regulation index,set up a early warning system of credit risk,cultivate risk management cultural in banks,so as to improve bank’s risk awareness,ease credit concentration,and optimize credit structure in China.