Correlation Between Commercial Bank Credit Portfolio Risk And Profit

Profitability and risk management are closely related and are always accompanied by the development of commercial banks.Most of the sources of income of commercial banks are loan interest income.Credit business is always accompanied by risks due to factors such as economic fluctuations,information asymmetry and principal-agent.However,the research on the relationship between bank profit and credit risk has not formed a complete and consistent conclusion.The Basel agreement supervision principle with capital adequacy ratio is more reflected in the passive risk prevention.The financial crisis since 2007 highlighted the shortcomings of similar post-event mechanisms.Regardless of how important the importance of risk management is,profit is actually the first driver of financial institution operations.Strengthening the link with profitability and incorporating profit into the unified vision of risk management can improve the comprehensiveness and initiative of risk management.In order to introduce the Beta regression model,this paper first puts forward the hypothesis that the credit loss obeys the Beta distribution.The Monte Carlo numerical analysis and the empirical test of the five-category data of the loan support the hypothesis.The calibration expected credit loss calculation formula is proposed according to the Beta distribution parameter.The credit risk model that introduces the loan interest rate factor is used as the research framework for the correlation between credit portfolio risk and profit.Then,empirically study the correlation between credit portfolio risk and profit,changing the Beta regression model to treat the Beta distribution parameter as dependent variable,and use the credit loss distribution parameter representing certain economic significance as the independent variable to establish a panel model to analyze the credit portfolio risk and The relationships between risk and earnings,risk and profitability.Subsequently,the influence of internal and external factors on the correlation between credit portfolio risk and profit is discussed.The relationship between the distribution parameters of credit loss and the influencing factors is estimated through the Beta regression model,and the credit risk model introducing the loan interest rate factor is used to carry out numerical analysis.Compare the changes of correlation between credit portfolio risk and profitability under three scenarios: linear correlation between internal and external factors,changing external factors given internal factors and changing internal factors given external factors.Finally,summarize the research content of the full text and propose the prospects for future work.Through the model,numerical analysis and empirical research,the main conclusions are as follows:(1)It is feasible to use the Beta distribution to fit the credit loss distribution,and the method of calculating the expected credit loss of the credit portfolio by using the distribution parameters can be applied to the small sample with limited public data,simplifying analysis process.(2)The credit loss Beta distribution parameters ? and ? have opposite effects on risks and returns.For commercial banks with large credit scale,the impact of stability factor ? on loan income level is not significant,reflecting that the internal management of such banks has developed to a relatively stable stage.The pressure on loan management is relatively concentrated in pre-lending marketing;In small commercial banks,the impact of the stability factor ? on the loan income level is higher than the industry average,reflecting that the credit management and internal culture of such banks are still growing.The credit operations of all commercial banks in the sample are in the profit range,but sometimes the credit operations of some commercial banks may be relatively conservative.(3)Under the two scenarios where linear correlation between the ratio of the floating interest rate loan and GDP growth,and changing GDP growth given the proportion of downward floating-rate loans,the commercial bank credit portfolio risk is negatively correlated with the profit.In the context of changing the proportion of downward floating-rate loans given GDP growth,the correlation between credit portfolio risk and profit changes: when the economic growth rate is low,commercial banks are relatively cautious in the credit market,and the squeeze effect of credit rationing theory is enhanced,and credit portfolio risk and profit are negatively correlated;when the economic growth rate is high,commercial banks in the credit market are relatively active,the squeeze effect of credit rationing theory is weakened,and credit portfolio risk and profit are positively correlated.These conclusions help to judge the nature of the relationship between the security and profitability of commercial banks,and adopt specific business strategies or regulatory measures according to different situations,such as: adjusting the business orientation according to changes in risk and profit relationship,and rationally formulating the adjustment range for loan provision rate and so on.Assuming that the credit loss is subject to the Beta distribution,it can simplify the measurement method of the credit portfolio risk indicator,such as calculating the expected credit losses by the mean of the distribution,calculating the unexpected credit losses by the standard deviation,and calculating Va R in the quantile.Based on the Beta regression model,the relationships between the Beta distribution parameters and the commercial banks' operational indicators,and internal and external influencing factors,are established.Combined with the credit risk model including the income factors,it can constitute the overall analysis framework of commercial banks' credit portfolio risk and profit correlation,providing reference for the business decision-making of commercial banks and the industry management of the regulatory authorities.