University of Waterloo
Faculty of Mathematics
The Credit Risk of State-owned Commercial Bank
China Construction Bank
Prepared by:
Jessica Wu
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Table of Contents
Table of Contents …………………………………………………………..…………………………………i
List of Figures …………………………………………………………………………………………………ii
Executive Summary ………………………………………………………………………………………..iii
1.0 Introduction ……………………………………………………………………………………………….1
2.0 Analysis of Credit Risk ……………………………………………………………………………….2
2.0.1 Current state of commercial bank credit operation ………………………………..2
2.0.2 Reasons of formation of non-performing loans …………………………………….4
3.0 Conclusion …………………………………………………………………………………………………7
4.0 Recommendation ………………………………………………………………………………………..8
4.0.1 Internal Banking System ……………………………………………………………………8
4.0.2 External Financial Supervision …………………………………………………………10
5.0 References ……………………………………………………………………………………………….11
6.0 Acknowledgements …………………………………………………………………………………..12
7.0 Appendix …………………………………………………………………………………………………13
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List of Figures
Figure 1: Percentage of Bad Loan in Major Banks ………………………………………………2
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Executive Summary:
The report named “Credit risk of state-owned Commercial Bank ” focuses on the
studies of credit risks in China’s commercial banks including the reasons for the
formation of non-performing loans. Also, the report proposes solutions from the
internal banking system and the external environment to the problem.
The secondary resources are mainly from journals such as the Journal of Zhongshan
University and previous paper such as “Credit Risk Management of Commercial
Banks”. Also, the website is used to illustrate the concept like loss given default
(LGD). The interview script with Danqing Ni, who is my supervisor, is used as a
primary source to give a perspective about the internal banking system.
The report concludes that in the current economic situation, state-owned commercial
banks have to both improve the internal management to the employees and the
external supervision agencies to alleviate the pressure on credit management. This
paper claims that this is a positive approach to relieve risks.
1.0 Introduction
Nowadays, credit risk is one of the major restrictions on the development of China’s
state-owned commercial banks. Credit risks exit every time banks give loans to the
customers who may not be able to repay the credit. The insecure credit assets and
non-performing loans which have high credit risk will probably become bad debts and
thus increase the loss of banks. As a result, a high percentage of non-performing loans
is one of the most dangerous factors that can lead to the bankruptcy of banks.
