An Empirical Analysis Based On DEA Credit Scoring Method To Manage Credit Risk For Banking In China

In 2006, finance market opens to the outside world completely in China and foreign banks will bring the huge challenge to banking in China. So their competition will be more intense. In order to strengthen competence, banking in China not only induced advanced management, the measure technology and the management experience of overseas, but also should continue to explore the credit risk management theory and function, according to the actual situation of China. Date envelopment analysis is adopted to develop credit scoring model for enterprises of China. To find the best and practical method, the quantitative analysis and experimental study are emphasized. In order to find the appropriate credit risk management method for banking in China, credit risk and its existing methods were introduced at first. Then strength and weakness of each method were discussed and the adaptability in China was presented. After that fundamental theory of DEA was described, simultaneously its development and application fields were presented and the new DEA credit scoring method was constructed. The main part of this paper was validating the feasibility of DEA application in credit scoring of enterprises of China. According to characters of 30 steel enterprises of China and financial statement, 6 financial ratios were chosen to be the inputs and outputs of DEA model. Finally the DEA credit score was calculated and the results were validated via regression analysis and expert judgment. DEA method depends on available financial ratios, avoiding subjective shortcomings, simplifying calculation, which has special meanings in credit risk management for banking in China. The thesis used open data to illuminate the practicality of the application of DEA in China, valuable both in theory and practice.