China's Commercial Banks Credit Risk Management Study

Credit risk, the oldest risk, always puzzles the bank' development. It is also the major factor which results in bankruptcy. Barings Bank's bankruptcy in 1995 and Asian finance Crisis in 1997 are both associated with credit risk.Banks cannot avoid credit risk, but they can manage it. Combined with risk management experience of Citibank and Deutsche Bank, from the point of managing risk this paper introduces status in quo and analyses cause of formation of credit risk in our commercial banks. Research finds that our banks' major credit risk derives from high non-performing assets, which are threatening banks' persistent development. After China entered into WTO, all-sided financial opening is around the corner in 2006. Improving our commercial banks' competition is the inevitable choice. Only this, can our commercial banks, especially four state-owned banks, accept the challenge from banks at home and abroad. Nowadays financial innovation is the main way to improve banks' competition, which is recognized by modern banks. Financial innovation includes financial ideas, system and derivative instrument.On one hand, financial innovation decreases or decentralizes credit risk, however on the other hand, it maybe brings new or potential risks. So financial innovation must be linked with credit risk management and they strength banks' competitive ability together. Practice proves that credit risk management makes a hit on loan pricing, credit conditions, balanced scorecard, consumer credit.Opportunity and challenge are the two sides of a coin. If our commercial banks hope to occupy a certain market share in intending competition, the first question they must solve is credit risk management. As an inevitable way to banks' development, financial innovation should support credit risk management, vice versa.