| Summary: | Bank loans can be characterized as the engine of the Chinese economy as the
economy is almost financed by bank loans. As a result, Credit risk management in
Chinese banks is not only the issue to those banks, but it is also essential to the
stability of the whole economy. Inadequate credit risk management practices can
create an unforeseeable disaster to China in the future, especially with a significant
increase in credit expansion. In the last decade, the government has tried hard to
reform the banking industry, but there are still problems in the banking industry. It is
not surprise there are still problems in relate to credit risk management.
The Basel committee (1999) defines bank credit risk as the potential that a bank
borrower or counterparty will fail to meet its obligations in accordance with agreed
terms. The goal of credit risk management is to maximise a bank�¢����s risk adjusted rate
of return by maintaining credit risk exposure within acceptable level. In the context of
asymmetrical information, the most effective way is to reduce asymmetry information
between lenders and borrowers. This study will mainly follow this framework to carry
out the study with some other considerations as well (loan pricing, credit risk models
et al).
The original objective of this study is to investigate the current credit risk
management practices of loans to SMEs in China. However, the major results of this
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study provide much wider findings. During the research, the researcher has
discovered the problems that presented in SMEs loan also represent the general
problem in credit risk management practices in Chinese Banks. Hence, after careful
consideration, the aim of this study will be more likely to focus on the current credit
risk management in Chinese banking industry.
Key word: Credit risk management, asymmetric information, expert system, credit
risk models, relationship banking and loan pricing models.
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