Credit Risk Management In Rural Commercial Banks In China

Credit risk is one of the most general risks that exist in the monetary market and a main risk faced by monetary associations.Credit risk administration(CRM)is to identify,measure,monitor,and control risk arising from the possibility of default in loan repayments.The primary objective of CRM of rural commercial banks(RCBs)is to maintain risk within acceptable parameters and satisfy the regulatory requirements.This thesis examines the importance of CRM for RCBs,that has been overlooked in the literature,and attempts to develop a CRM scheme for RCBs.It has four specific research objectives:1)To discuss the importance of RCBs exactly in PRC2)To examine the importance of CRM for RCBs and identify the approaches available for banks to manage credit risks;3)To identify the key aspects that have influenced the credit evaluation and assess SMEs,as well as credit risk control in the context of PRC’s RRCBs;4)To propose a practicable CRM scheme that suits the characteristics of Chinese RCBs.This analyze adopts qualitative analysis and case analyze approaches to identify key aspects contributing to the failure of RCBs’ customers,resulting in loan defaults and banks’ credit risk.The quantitative-based CRM tools available for large monetary associations do not meet the requirements of RCBs because the main customers of RCBs are SMEs and farming households and there’s a lack of monetary info and credit rating relating to these customers.In addition to normal risks faced by monetary associations,RCBs in PRC are also exposed to risks specifically to rural commercial banking enterprise and in exact,farming-related loans and services.This analyze proposes a CRM scheme for RCBs in PRC.The scheme is based on the identification of enterprise failures of RCBs’ customers and aspects contributing to the failures of SMEs and farming households.The scheme is divided into five steps.The first step is to distinguish enterprise failure and closure.The second step is to identify aspects contributing to the failure of customers,that must beconsidered from environmental,operational,monetary and guanxi aspects.The third step is to identify principal aspects.The fourth step is to design a credit risk analysis standard with an analysis of these principal aspects.The final step is to use the credit risk analysis standard to manage credit risks of their portfolios and individual loans provided to SMEs and farming households.The case analyze through an analysis of documents of the case bank reveals the importance of CRM and organizational structure in risk administration and CRM.The case analyzes presents evidence of lacking of practical methods in managing credit risk by RCBs in PRC.The proposed scheme expects to address the problem.This analyze has made several contributions to the literature that studies CRM in monetary associations in general and Chinese RCBs in exact.This analyze critically identifies the current lack of studies specifically addressing the RCBs’ CRM,and proposes a CRM scheme for RCBs.The scheme considers monetary and non-monetary variables to analyze SMEs and farming household for that monetary information is very limited.Using nonmonetary variables along with monetary variables as predictors of enterprise failure significantly improves credit analysis quality and precision.The consideration of guanxi in credit risk analysis fits well with PRC’s enterprise environment.