Internal Risk Control Research On Entrusted Loans Of Listed Banks In China

Entrusted loans have experienced rapid growth in domestic markets since the 21th century. As revealed from the data of People’s Bank of China, the markets increased by 2.55 trillion yuan (RMB) in the year of 2013, and 2.51 trillion in 2014, respectively. The residual balance of entrusted loans has been surged by 88% during the period between 2011 and 2014. The growth of entrusted loan industry also results significant default events in the market, as a major form of Chinese-style shadow banking system, its potential risks have gradually exposed to the public, which lead to carefully concerns from financial regulators, entities and banks.A healthy expanding of entrusted loans industry could contribute to social and economic development, economic effectiveness of social financing and optimization of resource allocation; it also brought intermediary business incomes to the bank. In principle, banks as agencies between lenders and borrowers only charge a certain service or commission fees rather than bear any potential risks. However, as the insufficiencies of regulators’ polices and inadequacy of internal control regards to entrusted loans business, increasingly threats are placed in front of public banks. Hence, on the backgrounds of gradually reinforcement of financial regulations, it is increasingly important to strengthen risk control and risk management of public banks’ entrusted loans business.The primary objective of this report is to highlight the significance of public banks’ internal risks control in entrusted loans business, explore the possibility of lowering the significance of financial risks to the whole financial industry resulting from entrusted loan business, and how to standardize public banks operational procedures fundamentally. This report combines theories and practices, takes the case of entrusted loans business in the bank of communications, investigates the effectiveness and drawbacks of internal risk control, as well as provides particular considerations and suggestions in terms of internal risk controls of entrusted loans business for domestic public banks.The report has represented an in-depth analysis of domestic public banks’ internal control relating to entrusted loans business, which consists of four parts, stated as follow:The first part introduces the background information relating to entrusted loans business, its significance and impacts, research methodology, interrelated literature reviews, as well as the innovation of this paper and potential shortages.The second part mainly focuses on theoretical analysis, which includes specific subjects on entrusted loans business internal risks control, contemporary internal control theories.The third part analyzes the meanings and features of entrusted loans business, related regulations and the current issues, problems and causes of domestic public banks’internal control risks.The forth part takes the default event of the bank of communications as an example for analysis.The fifth part summaries the possible recommendations and suggestions to improve the internal risks control over entrusted loans business, in respect of policy setting, executive mechanism, and supporting policies.