The Risk Management Of Project Financing Loans For The Domestic Foreign-Invested Banks

From the year of1979, as part of the reform and opening policy, China has granted permission to foreign capital for their participation in joint ventures. China has also taken a prudent opening policy with limited financing methods to conform to its national conditions and economic demands. Project financing, a vital constituent of international finance, has instilled lots of vigor to our national financial market. Due to its relative high return rate and stable anticipated revenue, it has evolved into one of the major asset businesses for some main commercial banks abroad. However, for influencing features such as long term, mass participation, complex structures and external market circumstances, the risk of banks’participation in project financing loan renders rather high. China’s study on project financing loan started late. What’s more, the study on risk management of domestic foreign-invested banks’ involvement in domestic project financing loan lags even behind.The subject of this thesis is based on the Chinese market whose study aims at the management study on project financing risk of foreign-invested banks in mainland China. The reason for which banks conduct study on risk management of project financing for enterprises resides in the fact that loan projects of banks have occupied the largest proportion of capital sources for enterprises’project financing. Under new operational circumstances, foreign-invested banks shall have pertinent risk management strategies for project financing owing to the host country’s operational restrictions.While foreign countries are practicing mixed operational modes, China is still in a transitional period, empowering commercial banks to operate partial investment business, such as project financing, asset securitization, etc, though. In a narrow sense, project financing denotes the creditor offers financing loan agreement for specific projects, who enjoys debt-paying claim on the cash flow regarding this project, and this project asset shall be the financing mode of collateral security. It is a financing mode with future revenue and asset source as funds to repay the loan secured and guaranteed. The functions and advantages of bank, a major actor, lies in the consulting service, offering loans, and security agent, and so forth. Yet, while enjoying the generous returns the businesses yield, in the meantime, the banks shall undertake risks, thus have to strengthen risk management. Under such circumstances, it is of theoretical sense and application value to carry on systematic research with regards to project financing so that it will be adjusted to an essential measure that conforms to economic reform and development. The aim of this thesis studies the risk management measures regarding project financing loan taken by domestic foreign-invested banks by analyzing the domestic local operational characteristics the risks they are confronted with. Moreover, by comparison with domestic Chinese banks, suggestions for enhancing risk management are put forth. Hopefully, this thesis will serve as a facilitator for better development of China’s financing by helping Chinese commercial banks deal with risks in project financing loans.The research main line of this thesis that takes a world economic perspective proceeds as follows:First, it gives an overall statement of research achievement of banks’ participation in project financing loan risk management and points out further research direction. Second, it studies risk management characteristics and measures of project financing loan of foreign-invested banks home and abroad, and proposes suggestions by taking the characteristics of project financing of Chinese banks into account. Finally, it concludes its inadequacy and puts forth future research direction. Based on the thinking above, this thesis contains the following five chapters:The first chapter serves as introduction, briefing thesis background and research situations home and abroad.Chapter two introduces the theoretical basis of project financing of commercial banks, including the risk management theory of commercial banks, the risk management theory of project financing, the elements and features of project financing, participator of project financing,which paves sound theoretical basis for the thesis.Chapter three presents the financing and loan categories and the methods of risk measuring of commercial banks. It not only introduces the characteristics of multinational banks’ participation in project financing and loans, but also the industrial features of China’s commercial bank loans.Chapter four gives an account of the enlightenments of domestic foreign-invested banks’risk management model have on China with case studies, among which world famous The Hong Kong and Shanghai Banking Corporation Limited, known and later referred to as HSBC and Standard Chartered Bank first make the earlies entry into China. These examples have demonstrated HSBC’s organizational model of risk management and also the principles leading foreign-invested banks like HSBC have to conform to. In the meantime, Industrial and Commercial Bank of China, known as ICBC, has been taken as a case study for the analysis of risk management. Finally, it concludes relevant enlightenments that Chinese banks should learn.Chapter five acts as a conclusion part, it states the flaws and future studies of the thesis. At the same time, there are additional original points to be noted:First, based on domestic market features and the business features of foreign-invested banks, it analyzes the advantages, disadvantages, opportunities, threats of Chinese banks’participation in project financing with SWOT analysis method.Second, based on domestic markets’features and international financial circumstances, this thesis gives an analysis of the domestic foreign-invested banks’ project financing loan.Third, it is a combination of theory and practice. Domestic applicable featured measures of project financing can be found by visiting typical domestic foreign-invested banks’websites.The following research methods are utilized in this thesis:The combination of theory and practice. It further elaborates the related concepts of banks’project financing, using quantitative and qualitative methods as well; meanwhile, based on theory, it expounds the risk and management methods by means of giving demons.2. Qualitative analysis and quantitative analysis coupled.The description of the risk in bank project financing, especially for the foreign banks, not only requires a qualitative perspective, however, it cannot only rely on the quantitative model of mathematics. This thesis analyzes the foreign-invested banks’financing loan a qualitative description perspective. In the meantime, it analyzes the features of foreign-invested banks’financing in a worldwide range, which makes it convinced.3. Cases analysis. After elaborating basic theories, this thesis lists typical cases of foreign-invested banks which have carried out management analysis, based on which, ICBC has been taken as a case study for comparative analysis. Then, a conclusion that the foreign-invested banks shedding enlightenment to Chinese banks of the operation and management in a more persuasive manner is drawn.