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A Research for Credit Risk of Domestic Rural Financial Institutions

Author: LiJian
Tutor: LiuLiWei
School: Dongbei University of Finance
Course: Finance
Keywords: rural finance institutions credit risk management
CLC: F832.4
Type: Master's thesis
Year: 2011
Downloads: 268
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Abstract

It is well known that credit risk management is the core part of risk management in commercial bank. It has been considered as the most key and challenging part in risk management area since 1990s. The continuous developments of financial market and financial derivatives make the credit risk surging and complicated. However, the current financial market liberalization in China is still at the primary stage, and the loans still take the large propitiate of total assets. In this light, the credit risk is one of the biggest risks for rural financial institutions to deal with.The approach of China’s reform and opening- up, especially the entrance of WTO accelerating the financial globalization for economic and finance,compared to the +Basel Capital Accord and credit risk management model in banks of western developed countries, Chinese credit management are still in the beginning level. There are some shortages in risk management mechanism, such as the problems in credit structure, credit operating process, credit supporting system and achievement appraisal system. The rural financial institutions in China has not accomplished operating index of optimizing the relationship of risk and return, which increased both the financial and operating risk.Rural financial institutions are the core of the rural finance, and play a vital role in the rural economic development. The rural financial institutions has played an important role in solving farmer’s loan difficult problem, increasing farmer’s income and promoting rural economic development. But its unique characteristics make the rural financial institutions face great credit risk during the implementation process of credit business. The default phenomenon often occurs and the rate of non-performing loan remains high. Now, it exists a lot of subjectivity when assess the farmer’s credit status. This easily leads to credit rating inaccurate and the loans can’t recall in time. At the same time, as a high risk sector, the rural financial system has a natural vulnerability. The accumulation of financial risks can easily lead to financial instability in rural areas, destruction of rural economy and social stability. In particular, in today’s global economy and financial integration, the rural finance institutions is influenced easily by the international financial crisis. It is important to strengthen risk control and management research, to construct scientific and effective rural financial organization system and operation mechanism, and what is more, to promote the virtuous circulation of rural finance.Credit risk management in the rural financial institutions of China has great significance for building a sound credit system and a strict social credit system which aims to optimize the risk management system. Many domestic scholars built different credit risk Management models based on learning from foreign experiences.The paper introduced the content and requirement of《new Basel accord》about credit risk management. And in the framework of the new Basel accord, the paper introduced the meaning of credit risk in the rural financial institutions, the measure method of credit risk. On the base of evaluation of credit risk management of the rural financial institutions, the problems and causes of credit risk management were analyzed.On the base of extensive research from many domestic and foreign scholars, the paper roundly reviewed the development process of credit risk management theory and introduced different kinds of Credit Risk Management models by using the method of positive versus normative analysis. On the base of introducing the theory and models, the paper selected thirty-seven public corporations from Shanghai and Shenzhen Stock Exchange and made a principal component analysis of the financial data. Through positive analysis, some conclusions were obtained which have certain reference value to the Credit Risk Management. Combing with Chinese practices and the system of Credit Risk Management from some other western countries, some suggestions which we can learn from development western countries were pointed. In the last part of the particle, some suggestions with reference to credit risk management in the rural finance institutions were proposed.

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