The Application Study About The Internal Rating-Based Approach In Our Commercial Bank

The stability and development of banking industry affects the entire financial system, or even the whole country’s economic lifeline all the time. With the gradual opening of China’s banking industry, they are facing increasingly intense international competition, so that credit risk management is becoming one of the biggest challenges of our commercial banks responding to market competition in the transition period.In order to cope with the increasingly complex external financial environment and innovative financial products, and improve the management of bank, the New Basel Capital Accord was announced formally in June 2004. The new agreement with particular emphasizes on the important role of the Internal Ratings-Based Approach(IRB) in Risk Management and Capital Supervision. But there is still a large gap between China and internation in some aspects, including capital adequacy ratio,risk management and international competitiveness. And China’s economy is in a phase of shifting growthand changing patterns of development. Therefore, whether they are in order to improve the bank’s own risk management or to enhance their international competitiveness, the implementation of the IRB is their inevitable choice for commercial banks of China. However, our research focused largely on the overview introduction or the analysis of implementation problems, and few constructive suggestions were proposed for solutions of difficult and choice of strategies. Therefore, it is imperative to accelerate the IRB construction and improve credit risk management for China’s commercial banks.Firstly, the paper elaborates the necessity of the IRB on the basis of the introduction, give a general review of the IRB application, and points out the major problems, including database construction, credit risk measurement model construction, construction of risk management system and the procyclical effects of the IRB, etc. Then by reference to foreign commercial banks, the paper puts forward some suggestions to our commercial banks:elaborate the basis database construction from four aspects, including the expansion of data collection sources, data integration and cleaning, and strengthening the construction of management information system; establish the credit risk measurement model suitable for China’s national conditions with combination of qualitative and quantitative method; build a perfect risk administration system;finally, mitigate the procyclicality effects of the IRB through conducting stress tests and dynamic reserve mechanism. Based on the above analysis, this paper is designed to promote the implementation process of the IRB in our commercial bank, and accelerate the construction of credit risk management system.