A Study Of Effect Of Credit Mechanism On Loan Quality

This study performs an empirical analysi s of 60 business lending cases at taizhou branch of a commercial bank. The study examines two major items that the bank uses to assess loans and to investigate the loan closing reports and the credit rating table of loan-receiving businesses in an effort to determine significant variables affecting loan quality. Major research findings include:(1) The balance of loan has a negative correlation with loan quality, which is to say that the greater the balance of loan, the higher the likelihood of overdue payments.(2) The higher the loan rate, the more likely for default to occur, which indicates that the bank's appraisal of the creditor's risk is a strong factor affecting loan quality.(3)Financial statement legalized by an accountant or not has a negative correlation on loan quality, which means that the company's financial statement's being provided by an accountant's legalization would be less likely for default to occur.(4)Financial health of company is negatively correlated with loan quality, and the higher the score, the less likely for the creditor to fail to make on-time payments.Furthermore, the empirical findings of this study also indicate that many of the items the bank uses to assess loans have no significant correlation with the loan default rate. These items include corporate capital, guarantors, repayment style, collateral, types of business, and loan period. In this time of a higher bad loan rate, how to stimulate bankers' loan risk management, these findings may serve as an important reference for credit policies and loan business.