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Study on Credit Risk Measurement of Listed Companies Based on KMV Model in Commercial Bank

Author: LiYingChao
Tutor: LiuLvJi
School: Southwest University of Political Science
Course: National Economics
Keywords: commercial banks credit risk default point industry analysis KMVmodel
CLC: F832.33
Type: Master's thesis
Year: 2012
Downloads: 18
Quote: 0
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Abstract


Protecting against the credit risks are the core problems that commercial banksface. The uncertainties of global economy were increased by European debt crisis,economic downturn in USA and the political unrest in Arab nations started by “TheArab Spring Blooms”, which could worsen external environment of bank credit. As aresult, the credit risk faced by commercial banks will be higher. The inflationincreased prices of raw materials and labor originated in, accompanied by lowerenterprises’ profits and higher costs. Moreover, the enterprises default risks becamehigher because of the China interest rate marketization and market liquidity shortage.Therefore, the serious credit risk situation put higher requirements on Chinacommercial banks’ credit risk prevention.The commercial banks’ credit risks are the main object of study in this paper.First, introduce the credit risk correlation theories and the credit risk measure modeldevelopment course. Comparing four modern credit risk measurements, it shows thatKMV model is suitable for China’s financial market. As the foreign economy is fardifferent from China’s economy, the paper revised the default point and the estimationof stock market’s value, which fit China’s financial market. Then the paper putempirical study on32listed companies of4industries by the revised KMV model.The paper came to3conclusions: First, We compared the ST companies andnon-ST companies default distance from the mean difference under the three Defaultpoint groups found that, When the default point select0.75as a parameter, thedefault point DP=current liabilities+0.75*Long-term liabilities, KMV modelprediction significant.second,Comparative analysis of the default distance by ST companies andpaired ST companies, found that the non-ST-listed company ’s distance is greater thanthe ST’s default distance, indicating that the amended KMV model to betterdistinguish between ST companies and non-ST’s default risk.Third, there are differences among four industries in default distance. Thedefault risks are in the following descending order: real estate industry, bio-pharmaceuticals industry, automobile industry, electric power industry.Finally combined with empirical results, the paper made an analysis on fourindustries as a whole, and made recommendations for the credit management ofcommercial banks.The paper roughly divided into six parts: The first part is an introduction,itintroduced the background and significance of the thesis. And it contained researchcontents, ideas, methods and innovation.The second part was the review of related research in china and abroad, and theorganization of credit risk measurement and management theory.The third part introduced the measurements of bank credit risk. It introduced thetheoretical basis on KMV model for details, and the traditional research framework ofKMV model, including establishment of model, setting parameters and calculatingsteps.Then the traditional and modern credit risk measurements were compared,highlighting the advantages of KMV model.In the fourth part, according to the actual situation of China’s economy, it madereasonable amendment to the model.then it selected32in the listed companies assamples, on which the analysis was made by the revised KMV model. Then accordingto the comparison and analysis of empirical results, it proved the feasibility ofapplication of KMV model in China. Also based on empirical results, it madecomparative analysis of four industries.In the fifth part, based on the analysis of empirical results, the paper tested thedefault risk of the four industries, and provides policy recommendations for creditrisk management in commercial banks.Finally, it summarized the whole content, pointed out the limitations of the studyand made prospects for subsequent research.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Financial organizations, banks > Commercial banks ( specialized banks )
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