Causes and Solutions of Npl in China

3783 Words Apr 15th, 2012 16 Pages
Jun. 2007, Volume 6, No.6 (Serial No.48)

Chinese Business Review, ISSN1537-1506, USA

Causes and solutions of non-performing loan in Chinese commercial banks
GUO Ning-ning
(Jiangsu Branch, Bank of China, Nanjing 210005, China)

Abstract: Non-Performing Loan (NPL) is one of the concrete embodiments of credit risk which banks take. NPL is a huge puzzle for Chinese commercial banks, so how to enhance risk management to improve assets quality and lower down NPL are of great importance to those banks. Key words: NPL; Chinese commercial banks; causes; solutions

1. Analysis on causes of NPL in commercial banks
There is so-called “4-3-3” distribution for the causes of formation of corporate customers’ NPL from actual practice, i.e.
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And the customers’ exit policies are not detailed too, which do not lead to enough exit management for customers. 1.3.1.4 Unsound assessment mechanism, no well-suited accountability system In the past, the setting of performance assessment indicators was heavily equalitarian and didn’t consider risk adjusted revenue, so there was little emphasis on risk control and exit management. In addition, there were many behaviors which violated rules or policies, for instance, splitting one big number into several small pieces to avoid authority authorization, exceeding one’s authority to approve, etc., in the process of credit management, since the accountability system was not fully established. 1.3.2 Haven’t formed active and healthy credit culture The credit culture, which is the convention and method developed in credit policies. Business process and risk control are important parts of banks’ enterprise culture. The insufficiency of credit culture lies in two aspects: weak risk consciousness and misunderstanding in credit conception. 1.3.2.1 Weak risk consciousness Firstly, no established scientific development ideas, and lack notion of balance among risk, revenue and capital. No full consideration on possible loss of potential risk and having not realized business expansion, which are constrained by capital. Focusing on the possible revenue from business growth will lead to