Silver City County Rural Credit Cooperatives Credit Risk Management Evaluation

Since its establishment, adhering to the tenet of serving for the rural area and farmers, the rural credit union has made its due contribution to the development of agricultural economy. After 50 years’ development and reform, along with the integration of urban and rural areas, the rural credit union not only promotes its financial service for rural areas continuously, but also supports the development of medium- and small-size enterprises and county economy. Two concerns have come up during the transformation of the rural credit union. First, the operating risks for the rural credit union are growing with the expanding business field and increased credit scale. Second, the rural credit union’s staffs are not all professional and very often, they lack of risk-control experiences. Moreover, the internal-control mechanism is still being shaped gradually. At present, the accumulated credit risk is emerging. The percentage of non-performing loan in the rural credit unions is higher than that of the other commercial banks. It has affected the reform and development of the rural credit unions seriously. The control of credit risk has become the most important task of the rural credit unions. As financial enterprises with independent management, self-restriction, self-development and self-responsibility, the credit unions have to truly recognize the importance and the urgency of risk control, along with the improved awareness of risk prevention. This is for the survival and the development of the credit unions. Therefore, how to prevent and resolve the credit risk, and how to promote the social and internal benefits of credit funds have become imperative to achieve the goal of the credit unions. Based on the management of one loan of Yindu County Credit Union, this paper analyzes the existing problems and causes in the credit risk management of Yindu County Credit Union. Furthermore, this paper makes suggestions for underwriting, loan management and book-keeping practices. This study is also expected to provide useful information for credit risk control for the other rural credit unions.This paper can be divided into five parts. The first one is the introduction, which includes the study background, purpose and the methodology. In this part, the necessity and importance of credit risk-controlling are emphasized as the significance of this study. The second part is the overview of the operation of Yindu County Credit Union. In order to better understand the rural credit unions, the main performance ratios of the rural credit union are compared to those of the national financial institutions. The situation of credit risk management of Yindu County Credit Union is presented in Part Three. Specifically, this part introduces of the characteristics, types, causes and management of the credit risks. At the same time, the potential problems in the management of the loan funded for Shunyuan Company are discussed. The fourth part analyzes the credit risk management problems in Yindu County Credit Union. Specifically, it suggests that the major problems may include:lack of risk awareness for the managers at all levels; the loan underwriting process being nothing more than a formality; the prevalent risks in loan origination; the un-shown quality of loans, etc. The possible reasons are also given in this part:unprofessional credit union staffs; non-standardized loan origination process; bad solutions for non-performing loans; unreasonable performance assessment of staffs. The fifth part gives practical advices for credit risk management for Yindu County Credit Union. The measures focus on the risk managements before, during, and after the loan origination. Furthermore, this paper gives risk-controlling suggestions for government-sponsored loans and secured loan. At last, the paper suggests further research on credit risk control for the rural credit unions.