The Research On The Credit Risk Management In Consumer Loan Of China Construction Bank Hunan Province Branch

As an emerging business sector in Chinese commercial banking industry, consumer credit market has a great growth potential. Meanwhile, it also has many risks. One of the major risks is the credit risk and credit risk management can directly affect the growth of the consumer credit business. As one of the first-tier branches of China Construction Bank, the Hunan Construction Bank shoulders heavy responsibilities to establish best practice of consumer credit risk management. There are four steps involved in the consumer credit risk management process: risk identification, risk assessment, risk pre-warning system and risk control. By analyzing these four steps, this paper provides a study on how to strengthen the consumer credit risk management and how to prevent and control credit risk at Hunan Construction Bank.By applying credit risk identification and assessment theories, the paper first examines Hunan Construction Bank consumer credit borrowers' key features and empirically investigates the variances of the borrowers' payment ability through micro-simulation of the borrowers' income level. The simulation uses factors closely related to the borrower's income level such as education, age and occupation etc. as variances to predict and assess the borrower's repayment ability. The outcome of the simulation can be used as key information to make credit decision. To date, some second tier branches of Hunan Construction Bank have started applying this approach in their lending practices.Further, this paper discusses five key elements associated with establishing the consumer credit risk pre-warning system: timeframe, monitoring index, critical value, default probability and level of pre-warning. The monitoring index includes factors that might result in borrowers' default. These factors will have impact on the borrowers' repayment abilities. Within the pre-warning period, the more factors reaching or exceeding the critical values of the pre-warning system, the higher probability of default and the weighted average of the pre-warning signals can be used to measure the default probability of the consumer credit. As a result, the outcome can be applied as a guidance in the policy making process for credit risk management.Finally, the paper discusses strategies to be applied in consumer credit risk control such as selecting the credit authorization method, determining the amount of credit authorization, making policies related to credit authorization, establishing and improving the lending accountability system and improving the lending staffs' overall qualities and performances. Furthermore, the paper illustrates three methodologies that can be applied in credit risk control: establishing reliable and systematic credit risk rating, pre-warning and monitoring system, implementing portfolio risk management and strengthening risk control against non-performing loans.