The Applicability Of Internal Rating-Based Approaches In China Commercial Bank Credit Risk Management

This article discusses the comprehensive guide for bank credit risk management provided by Basel Capital Accord II ,which includes the standard of measurement, the method of technology and the require of system, and the feasibility of Internal Rating-Based(IRB) Approaches in Chinese banks. The main aim of this thesis is to explore a way of improving the credit risk management for Chinese commercial banks.After reviewing the key contents of Internal Rating-Based Approaches of Basel II, the thesis introduce seven ways in applying IRB, which include formulating loan structure, regular inspection after loan, the analysis for loan compounding, setting up the upper limit of loan, bad debt disposal, determining risk premium, distributing capital, and performance evaluation.This article focuses on improving the risk management of Chinese banks by using the Basel II credit risk management measurement rules and approach after analyzing the experience in Chinese banks.This article includes five chapters:Chapter 1 provides the background introduction, the purpose of this research, the research ideas, and frameworks.In Chapter 2 offers the development and key contents of Basel II and an introduction of the IRB.Chapter 3 switches to the importance and the applicability of IRB approach in China's commercial banks to control credit risk.Chapter 4, studies the frame of credit risk management of Chinese commercial banks under Basel II ,the implementation of IRB approach of Chinese commercial banks, which includes formulating loan structure, regular inspection after loan, the analysis for loan compounding, setting up the upper limit of loan, bad debt disposal, determining risk premium, distributing capital, and performance evaluation.Chapter 5 gives some opinions and suggestions. The IRB approach should been studied and refreshed in developing the practical IRB to improve the risk management of our commercial banks.