Study On Credit Risk Of Chinese Commercial Banks On CPV Model And Stress Testing

The U.S. sub-loan crisis happened in2007, evolving into a global financial crisis.The reason is that there is poor management of credit risk in some banks of theUnited States. Recently, the European debt crisis becomes serious. Credit risk of theEuropean Banking continues to rise, so does it of the global banking. Traditionalmodels of credit risk management are no longer able to adapt to the current financialenvironment and the development of banking industry. Comprehensive and effectivemodels, methods, techniques of commercial banks’ credit risk management areconcerned in all countries and the world banking. There is not only considerabletheoretical value but also great practical significance for us to learn technology andmethods from the developed countries and combine our national condition to carryout an in-depth study on credit risk measurement of Chinese commercial banks.Firstly, this paper introduces the background and significance of the research,commentary of research results at home and abroad, research methods, structuralarrangement and the innovation of this paper. Secondly, the research introduces creditrisk of commercial banks, basic connotation of credit risk, credit risk status ofChinese commercial banks, basic knowledge of stress testing and the feasibility ofstress testing on credit risk of Chinese commercial banks. It points out that there aresome problems in Chinese commercial banks such us high amount of non-performingloans, increasing credit risk of real estate, incomplete risk assessment system，etc.Thirdly, it introduces credit risk measurement models, outlines the traditional creditrisk measurement methods, recommends CPV, KMV, CreditRisk+, CreditMetrics this four modern credit risk measurement models, making a comparison in details andpresents the advantage and applicability of CPV model used in the study and Chinesecondition. Then, it presents the principals of CPV model, makes an empirical analysisbased on CPV model, obtaining the relationship between non-performing loan rateand macroeconomic changes, then carries out a stress testing under hypotheticalscenarios. The empirical result shows that CPI, GDP, fixed asset investment, percapita income this four explanatory variables make a good explanation tomacroeconomic index Y according to non-performing loan rate with rrs over95%. Itagain makes a further illustration on the validity and applicability of CPV model usedin credit risk measurement of Chinese commercial banks. This model makes arelationship between macroeconomic conditions and non-performing loan rate as therepresentative of commercial banks’ credit risk, in line with macroeconomic situationwill affect credit risk, providing decision-making reference for the regulatoryauthorities and credit risk management departments with certain practicalsignificance.In this basis, some views of Chinese credit risk management are carried out,including to foster advanced credit culture, to establish a sound internal controlsystem and credit risk qualification system, to speed up the pace of databaseestablishment, to improve the handling mechanisms of non-performing loans and toincrease investment in IT support and personnel training.