A Study On Credit Risk Of China's State-owned Commercial Banks

Credit business is the uppermost one of the state-owned commercial banks(SCB) in China.Therefore credit risk becomes the leading risk of SCB.In order to reply to challenge of foreign commercial banks actively after China joined WTO and strengthen anti-risk ability and competitive power,SCB need to perfect credit risk management urgently.According to the situation of the risk management of China's SCB,this dissertation selects credit risk which influences economy greatly as the subject of study.Based on the analysis of the causes of credit risk of SCB synthetically,this dissertation suggests several countermeasures.These countermeasures are:strengthening the risk management and internal control according to the requests of the Basel Agreement,setting up with perfect credit risk early-warning system etc.Credit risk means the uncertainty that the bank loses money,which is caused by the loanee that can't or would not like to repay the principal and interest of loan.The most primary and direct factors determining credit risk are ability and will of loanee to repay the loan,Factors affecting ability and will of loanee to repay the loan include morality,market and management.Loan is an illusive capital.Illusive capital raising continuously with the expansion will result in credit risk.Cyclical fluctuations of economy causes crisis and results in credit risk.Credit risk will probably lead to financial crisis.This paper dissertates"financial fragility"applying financial instability hypothesis,theory of asymmetrical information and theory of margins of safety.The interior impulse of the financial institutions for over-borrowing,and the inborn defects of the operational mechanism of the financial institutions,are major elements for the interior fragility within the financial system,which is the important internal factor resulting in credit risk.Financial moral hazard comes from human selfish appetence and restricted sense,asymmetrical and incomplete information,etc.Financial moral hazard increases cost of preventing risk,causes credit risk,and affects stability of financial system.Our country is now in the course of transition from planned economy to market-oriented economy.The causes of credit risk are complex.They are induced to three aspects,that is,the government,enterprise and bank.Hower,the primary cause is system.Therefore credit risk of SCB has speciality.System risk is an important factor resulting in credit risk.With the execution of asset and liability scale regulate, disproportional status of coexistence of credit overexpansion and over contraction comes forth.Credit contracts between banks and enterprises are incomplete contracts.Banks'problematic assets has exert effect on bank,economy and international credit standing rating.So it is very important and exigent to strengthen credit management.Based on discussing theory of commercial bank risk management,this dissertation presents tasks of SCB after China joined WTO.These tasks include increasing rate of proprietor's capital,perfecting the risk management institution,and intensifing the risk supervise.The goals of the commercial banks risk management are: managing and controlling risk,preventing and reducing loss,and realizing management moderately.SCB need to perfect credit risk management according to the Basel Agreement,deploy funds effectively,construct risk restriction mechanism,tranform"Quantity-Expansion-Risk"type to"Quality-Restriction- Benefit"type,and take corresponding measures.Basel venture management theory of commercial bank especially emphasizes giving effect to internal control to control venture of bank.Internal control of credit risk is the management system and operational mechanism that organize,harmonize and normalize interdepartmental interrelationship and restrict to realize credit operation objectives. Internal control construction of SCB has made progress in recent years,but it is still necessary to perfect internal control construction.Internal control mechanism should be constructed according to five principles.They are: legality,moderate management, puissance restrict ,procedure restrict and overall process control.According to the procedures of credit risk management,it is suggested that the internal control of credit risk should be strengthened from aspects such as construction of credit risk early-warning and grade system.It is also suggested that the strengthen internal control of all links including credit granting,back-check and collection should be strengthened.Credit risk early-warning is an important component of bank's internal control.Credit risk grade is the basic requirement of the New Capital Agreement of Basel,It is also an important component of credit risk early-warning system.Compared with western commercial banks,credit risk grade of SCB exists problems such as lack of grades.Some countermeasures are suggested to perfect internal grade regulation,such as adopting internal grade methods of international banks etc.At last some countermeasures are presented to prevent and reduce credit risks of SCB.These countermeasures are:strengthening construction of enterprise credit regulation to create well external operation condition for bank;strengthening construction of administer mechanism and bank culture to create well internal control condition for bank.It is also presented to reduce bank's problematic assets with enterprises converting system of ownership,and control credit moral hazard applying mechanism design.