The Study On Credit Rating And Limit Management For Foreign Commercial Bank

Commercial Bank’s clients are generally divided into 96 kinds.95 of them have muture credit risk models, while only one kind not having mature research and model, for this kind is different from the other 95 kinds of methodology. This study aims at this kind of clients.Foreign Commercial Banks are the most special, the most important clients for domestic Banks, which carry out international operations. Although accounting for only one in a thousand of all bank clients on the number, business scales could be up to half of the domestic Banks overseas business. In addition, foreign commercial Banks and domestic Banks are mutual clients with each other, closely linked, business variety and huge volume, and other significant characteristics of event risk spreads widely. China’s banking regulators clearly proposing requirements having Chinese commercial Banks each for international business when meet the requirements of the Basel Ⅲ Agreement regulation, must establish internal rating model and limit management of the foreign commercial bank clients, on the basis of not simply refering to or use of external rating agencies’ results (such as Moody’s, Standard & Poor’s and Fitch ratings).Because of the foreign commercial bank clients related model and methodology being different from general model of companies clients, domestic Banks have already been setting internal rating and limit management in place for all the other types of company client, but there is no complete research for foreign commercial bank clients model and related methodology. The overall research level is still relatively backward. Ratings and limit management are difficult to be used for real business development and risk management. Both regulation and actual business put forward the urgent demand for establishing foreign commercial bank ratings and limit management models. Based on this situation, this study has important theory value and practical significance.This paper referes to research abroad, and has further research on the foreign commercial bank credit rating and limit management model, The ultimate goal is to designe the internal rating and limit management model for Chinese commercial banks China to conduct international business outside. Both can satisfy the basic requirements of regulation and have the operability and practicability. Main part includes the following contents:1. Review the research results of scholars both at home and abroad from two aspects of credit rating and limit management. Elaborate domestic and foreign commercial Banks’ practice in the rating and limit management, analyzes the current rating and limit management work of Chinese commercial bank, for this work is to make preparation for the following research of rating model and limit management theory;2. The unity of the financial statements of the foreign banks’ data collection and analysis is of a huge difficulty, for many similar studies of domestic research having to stop there. To simulate a default instead of the actual default to establish real scale is also seldomly involved into the domestic previous studies, actual business exposure data fitting and limits setting also need long-term accumulation. From the necessity of setting the model of countries/regions and financial institutions rating, in accordance with the unified currency unit, unified financial ratios, unified accounting standards, regulatory requirements for data processing and the originality of the analysis and comparison, for the research of credit rating and limit management of data preparation;3. The establishment of macro risk assessment indicators for foreign commercial bank ratings, using the BP neural network method to establish countries/regions risk assessment model, the establishment of micro risk assessment indicators for foreign commercial bank rating, using univariate analysis for all the data of actual performance, fusing macroscopic and microscopic indexes afterwards. The rating model is established through measuring tools, and double checks for the rating model results. Finally, limit management model is established by applying the method of capital allocation and by introducing bank ratings’results and the probability of default.4. After putting forward the main conclusions through the sum-up, the research analyzes restriction factors from the system, technical level, resources and application effects of the four aspects, and puts forward suggestions, pointting out the direction of further research for commercial banks’credit rating and limit management of our country.The conclusions of this paper mainly includes three aspects:(1) This paper using the BP neural network model can accurately and fully reflects the various complex, outstanding extremum, historical inertia of default risk of macroeconomic factors on the countries/regions risk, in the aera of supportting for overseas bank risk assessment. The learning process by computer solves the problem of regression model which cannot be solved in the past. (2) In terms of rating model of foreign commercial Banks, extensive collection of data and the simulation of the default overcome the disadvantages of lacking of data to support the previous model. Using stable structure, rigorous econometric model to achieve better performance, model truly reflects the risk judgment and preference of domestic banks, from the point of inspection and empirical. (3) From the aspect of setting limits on foreign Banks, this paper combines the result of rating and default probability. Economic capital method is used to determine limit. And combination with the characteristics of different product design limit deductions and management model, this paper meets regulatory requirements and business practical needs.