The Application Of VaR On Commercial Banks

Since the financial market of our country has not been developed completely, there is not enough investing instrument to be available. That's why the main business of the commercial banks in our country is still focused on credit business, and this situation makes that the risk which most commercial banks in our country are now facing is definitely credit risk. For this reason, the management of credit risk plays an important role on the risk management of native commercial banks.However, the conservative methods on credit risk management are lack of scientific measures, which makes it difficult to calculate and control the risk condition in general. VaR provides an effective basis on improving the negative management of credit risk. VaR, that is, value at risk, refers to the most possible loss of some financial asset or stock portfolio within the normal variation in market.In this paper, Credit Metrics method, which was developed by JP Morgan, has been imported to investigate on the credit risk management of commercial banks in our country. Through the analysis on sample, we calculate the VaR of a commercial bank, so as to making sure of the condition of credit risk in this bank and the problems that may exist. Finally, we make some advices and suggestions on advancing the credit risk management on commercial banks in our country. We are in the hope that the research involved in this paper may provide some useful reference to the wide application of VaR on commercial banks in the future.