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The Asset Management of Commercial Bank Based on Credit Derivatives

Author: FengZiMing
Tutor: WangQing
School: Southwestern University of Finance and Economics
Course: Finance
Keywords: Credit derivatives Credit Risk Credit default swaps Derivative risk
CLC: F832.4
Type: Master's thesis
Year: 2009
Downloads: 74
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Abstract

Credit risk as the economic activity in one of the most important forms of financial risk, though already caused a high degree of attention from economic theory, workers, entrepreneurs, investors, and consumers, but there are different views on the definition of credit risk, here We believe that the credit risk refers to the possibility of loss due to default by the borrower or market counterparties, general credit risk include changes due to changes in the borrower's credit and ability to perform, leading to changes in the market value of its debt the possibility of loss. Therefore, it is not difficult to see that the credit risk is the most basic of financial markets, is also against the larger class of risk, its prevention and management efforts to solve the problem has been the world's financial industry. The commercial banks in pursuing the interests of target operating financial assets and financial liabilities, comprehensive functions. Rapid financial innovation, the changing of the operating environment of the commercial banks as well as inter-bank competition increasingly fierce, the commercial banks will encounter a variety of operations risk, credit risk is this the most important risk, thus circumvention of credit risk is particularly important. China's commercial banks facing credit high degree of centralization, and the complexity of the relationship between banks and enterprises in the reform of the financial system. Traditional financing methods led to deposits and loans in the financing structure of the market is still in the absolute dominance of stocks, bonds, the leading securities financing in a subordinate position. In this case, the non-current and non-traditional financing with deposits and loans as the leading trading is difficult to separate the credit risk, quantify and trading, and this objective we need to find a new kind of tool to credit on risk management, credit derivatives came into being in this case. Credit derivatives for credit risk management tools developed in 1990s, its original intention for the needs of the commercial banks to transfer credit risk. Credit derivatives time is not long, but because of the rapid expansion of its trading volume, innovative products continue to emerge, many institutions involved in the transaction, which the financial institutions and the whole way of the operation of the financial markets have had a significant impact. Therefore, the credit derivatives can fundamentally be considered given its risk management function by reengineering the traditional financial derivatives appear, it appears that a new method for the management of credit risk, to provide a new means of it makes of credit risk management from the traditional way of negative and passive avoidance risk transition to a positive and proactive portfolio risk management, its presence can make credit risk, liquidity and tradability enhanced, enhance portfolio returns and performance The combination of highly structured risk a major role, and to improve the ability to avoid the risk of the entire market. Traditionally, commercial banks, credit risk management is to minimize the probability of default on loans by choice, so as to avoid to defaulting loans loans. The traditional method of characteristics to effectively distinguish advance lenders, thereby reducing the likelihood of default, and it focuses on credit risk to advance prevention. Currently, the traditional methods of the banks to manage credit risk mainly mortgage, pledge, assurance, internal controls, and credit analysis. Our existing bank credit risk management methods in the past practice has played a certain role, and to some extent improve the level of commercial bank credit risk management, enhanced asset quality of the bank credit, reducing the rate of non-performing loans of commercial banks, but and can not explain China's commercial banks do not need to further enhance the efficiency of credit risk management. First, the heat contingent of non-performing loan ratio of commercial banks in China is much higher than the average level of developed countries. Second, the substance of the establishment of the Asset Management Company is the attribution of the non-performing assets in the financial system of internal redistribution of the overall level of credit risk in the financial system does not decrease because of the establishment of the Asset Management Company. Third, the amount of the asset management company on the recovery of non-performing assets accounted for only a small part of the total non-performing assets, the financial system as a whole still bear most of the losses, according to the statistics of the China Banking Regulatory Commission, the Committee of Statistics, 2006 The first quarter of four financial asset management companies, total assets recovery rate of only 24.20%, of which only 20.84% ??of the cash recovery rate. It is not difficult to see that our existing bank credit risk management methods in the past credit risk management practice achieved certain results, but its limitations should not be ignored. It is precisely because of its limitations exist, explore new credit risk management methods, and need for innovation in credit risk management tools. Currently lagging behind the technology, methods and means of China's banks manage credit risk, stay in credit analysis and review of internal control preventive static management, and the lack of pro-active, dynamic management approach. Our bank credit risk management has improved steadily, but overall, still seems to be rather weak. Given the status of our bank credit risk management, it is necessary to the negative, passive avoidance risk becomes positive, proactive portfolio risk management applied to banks' credit risk management, and credit derivatives have the need for it to achieve credit risk management methods effective way of innovation. Credit derivatives, credit default swaps pricing more mature with the relevant provisions and trading platform, in addition to the flexibility of the credit default swaps makes it the most suitable of the status of China's commercial banks and domestic financial market development level of derivative financial instruments. The reality of the economic environment in the process of development of the credit default swap, will certainly encounter a lot of problems and obstacles, we will encounter many derivatives, such as the counterparty risk, liquidity risk, legal and regulatory risks, as well as pricing risk risk, which we need a thorough understanding of all aspects related to, and select the one most suitable for the road of the development of the derivatives market in China. Taking into account the reality of the development of China's financial industry, the state-owned commercial banks in the risk management capabilities compared with foreign countries there is still a wide gap. Credit default swaps is widely used in advanced international banks and institutional investors, they also accumulated some experience. Thus, in select our bank to apply a credit default swap, can learn from the advanced international experience, to advance step by step. Credit default swaps nearly blank in our country, together with its application to certain technical and risk. So you can take the pilot run between Interbank first pilot application, developed to a certain stage and then between domestic banks and domestic institutional investors. Finally, to be in all aspects of the condition are more perfect, and then open to foreign banks and foreign institutional investors. This paper is divided into five parts out its risk management of commercial banks use credit derivatives. The first chapter is the introduction part. Introduces the research background, significance, domestic and international literature review, the logical structure and research methods. Through the study of literature at home and abroad, the contrast obtained credit derivatives in China is still a relatively new field of research, academia, research on credit derivatives also limited the discussion related to the concept and application of foreign practice, credit derivatives have caused the great importance of the banking sector and other types of financial institutions, but also the lack of in-depth research, not deep enough, and China is still lack of complete financial markets, the relevant credit data indeed related. The second chapter introduces the concept, characteristics and structural situation of the related credit derivative products, as well as through a variety of credit derivative comparison tools, draw their respective comparative advantages. Chapter through credit derivatives pricing, as well as in the role of the bank's credit risk management related discussion. And then come to the significant role of credit derivatives in banks to avoid credit risk. Part IV and Part V is the focus of the entire article. Chapter IV, first by introducing the current situation of China's commercial banks risk management, analysis of the strengths and weaknesses as well as possible difficulties to identify the limitations of the existing commercial bank risk management approach where to find the goals and direction of reform for the next suited to China's development of a chapter select pave hungry credit derivative products. The fifth through foreign inspiration and experience to carry out credit derivatives Credit derivatives - credit default swaps, the most suitable for the actual situation in China, and presented its recommendations in our implementation steps. In this paper, the analysis of credit derivatives hedging principle, the structure of the contract, the basis of the main advantages of our country at this stage specific financial practice, to clarify how it should be designed in our specific credit derivative applications do theory and reality combine has some practical significance. The data used in the analysis of the actual situation, combined with the international credit derivatives market conditions are possible to obtain the latest information, and to ensure the effectiveness and timeliness of the argument.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Credit
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