Risk Assessment System Of Credit Investment By Trust Companies In Exit Vehicle Companies

In recent years,government debts have become a main concern for the central government.To promote more efficient administration in implicit debts,CBRC(China Banking Regulatory Commission)issued article 34[2011] and article 12[2012],establishing a managerial system with registers for financing vehicles.In the system,vehicle companies are classified into two categories: “exit vehicles” and “supervised companies”.To exit the register,companies must be fully capable of covering their cash flow.Their new bank loans are examined and approved following the requirements of normal loan providers and are excluded from government debts.In 2018,the Ministry of Finance issued article 23,which prohibited financial enterprises from issuing new loans for LGFV(local government financing vehicles).The regulation further increased the political risks in financing businesses provided by trust companies in financing vehicles that are staying in the register.For trust companies,a more promising prospect in the long term is to promote business with the “exit vehicles”.However,the absence of a risk evaluation system in the business with the "exit vehicles" can be detrimental to trust companies.Based on this,the core research question of this paper is: How to assess the risk of credit investment by trust companies in exit vehicle companies.The Trust Company studied in this paper,Z,has been leading the domestic trust business.Since the release of the said policies,its business with the "exit vehicles" has witnessed significant growth.Yet business as such displayed certain defects: its risk assessments for clients are mainly oriented by government credit,the criteria of which lacks a professional enterprise orientation.As a result,possible failure in payment and breach of contract may occur and the business with the "exit vehicles" will thus be hindered.Therefore,for trust company Z,the necessity for the establishment of a risk assessment system exclusive to the "exit vehicles" is self-evident.The paper proposes research on risk assessment for businesses with the “exit vehicles”.Firstly,the paper established an assessment system for business with the "exit vehicles" in the four dimensions as follows: the significance of functions and the qualification of the financier,the business environment,and fund management.Each criterion is further divided into two or three levels.The risk index weights of the first and second are quantified with AHP(analytic hierarchy process),and the evaluation standards of the third level are explained explicitly;secondly,the system displays the evaluation results ranging from “No Admission” and “Prudent Evaluation” to “Normal Operation” and “High Quality”.Investment plans in practical business can thereby be proposed according to the different evaluation results;lastly,the paper assessed a client,A,with the presented system for the “exit vehicles” and obtained a result of “No Admission”,which conforms to the factual result.This further verified the rationality and validity of the proposed risk assessment system.The paper presented an innovative attempt in choosing the exit ones among the financing vehicles as the object of assessment.With the tripartite indexes and quantified weighting,the paper proposed a risk assessment system and evaluation criteria for the “exit vehicles” as the clients,the validity of which is verified.The established system will assist the expansion of trust company business with the “exit vehicles”,and provide a reference to future improvement and proposal of assessment systems of corporate credit investment business.