The Research On The Credit Risk Management Of Rural Credit Cooperatives

The Research on The Credit Risk Management of Rural Credit CooperativesBeing the main service provider in China’s rural financial market, rural creditcooperatives face credit risk, which is the major risk faced by them in the availablemarket structure and has its own particularity. The research on the credit riskmanagement of rural credit cooperatives is of crucial significance in the improvement oftheir management ability, the promotion of the modernization of rural financial marketand the development of rural economy in China.This paper consists of6parts. The first part includes the research background,significance and an overview of the studies at home and abroad. The mainstream creditrisk management practice at home and abroad including such models as ZETA, KMV,Creditmetrics, CreditRisk+and Portfolio Credit Risk are introduced in the second part,and their application condition, merits and drawbacks are analyzed. In the third part,credit risk management practice in China are analyzed from such aspects as theinstitutional framework, supervisory control, early warning and sustained release. Wemake a conclusion that RAROC is the applicable model. Performance appraisal of creditrisk management of rural credit cooperatives in China is conducted in the fourth partusing data in the latest5years. And the fifth part is about the analysis of the problemsand the causes of credit risk management of rural credit cooperatives in China utilizingRAROC. At last, countermeasures and suggestions are made on the improvement ofcredit risk management.The innovations of this paper can be found in two aspects. The first one is about thenotion of credit asset portfolio management. When dealing with the credit risk management of rural credit cooperatives, the available studies only take the risk exposureof loans into account, neglecting the risk relations of different loans. We consider thetotal credit risk limit of a credit asset portfolio, and hence improve the efficiency of theeconomic capital of rural credit cooperatives. The second one is the utilization ofRAROC, which achieve a balance between profitability and financial soundness in themanagement of financial institutions. RAROC is not popular in the credit riskmanagement of rural credit cooperatives in China, and this paper can be seen as a newapproach to improve the credit risk management ability.