Credit Risk Precaution And Disposal Of Local Government Financing Vehicles

With the advancement of government implicit debt resolution,the strong-guarantee relationship between governments and local government financing vehicles(hereinafter called “LGFV”)has been broken,the credit risk of LGFV has gradually increased.In contrast,there has not been a default case in bond market and the credit rating cannot reflect the credit risk of LGFV accurately.Therefore,it is significant to establish an effective credit risk precaution model and design risk disposal plan to prevent systemic risks and promote the market-oriented transformation of LGFV steadily.First of all,this paper defines the concept of credit risk.Based on the practice of domestic and foreign literature,the inflation of external rating and the credibility of rating decline,the generalized credit risk is used to define the credit risk of LGFV,which is described by credit downgrade.Then,based on the risk characteristics of LGFV,this paper compares the mainstream credit risk precaution models,and proposes the optimization idea of combining XGBoost algorithm with credit scoring model: the prediction results of the XGBoost model are used as variables for Logistic regression and converted into credit scores.By comparing the model before and after optimization and robustness test,it is considered that the precaution model performs well in comprehensibility,interpretability,robustness and generalization ability,which can reflect the potential credit risk of LGFV and solve the problems of rating inflation,rating lag and rating inconsistency.The precaution model includes 28 explanatory variables that reflect the support ability and willingness of local governments and the situation of LGFV itself.It is found that the support ability of local governments is still an important factor affecting credit risk,but this effect has a weakening trend.And negative public opinion and Cash& Cash Flow have a strong predictive effect on credit risk.Furthermore.based on the precaution model,this paper establishes a risk disposal plan from the perspective of regulator and LGFV.In terms of regulator,the precaution model found that the credit risks in the western and northeastern areas are relatively large.It is necessary to ease the regional financing pressure to restore market confidence,and improve the credit scores of public opinion,capital and cash flow to resolve regional credit risks.LGFV should pay attention to the performance of risk factors related to its own situation in the precaution model.Negative public opinion should be dealt and capital & cash flow should be stabilized in the short term,.In the long run,profitability and liabilities should be be optimized in combination with business characteristics.So far,this paper has completed the research on the credit risk warning and disposal of LGFV.