Commercial bank credit risk management based on grey incidence analysis

Abstract

Purpose

This paper attempts to analysis the credit risk at the angle of industrial and macroeconomic factor using grey incidence analysis method.

Design/methodology/approach

Credit asset quality problem is one of the obstacles limiting the further development of commercial banks; the research on credit risk becomes an important part of the implementation of a commercial bank's risk management. Different industries may have different effects on the credit risk of commercial bank. This paper proposes finding out the different incidences between industries and credit risk, as well as macroeconomics. Incidence identification method is established to investigate whether the industry and macroeconomic factor could affect an impaired loan ratio of a bank using the grey incidence analysis method.

Findings

The results indicate that the impaired loan ratio differs with diverse industry's influence and the macroeconomics also affect it. From the angle of the industry, the result can also determine the risk deviation scope in the grey risk control process which offers new content and ideas within the grey risk control.

Practical implications

Under the guidance of the principle of “differential treatment, differential control”, this research will help to strengthen the implementation of differentiated credit policy, focus on guiding and promoting the optimization of credit structure, so as to maintain a reasonable size of credit facilities and build a steady currency credit system.

Originality/value

The paper succeeds in finding the top five influent industries compared with others by using one of the newest developed theories: grey systems theory.

Citation

Jin, J., Yu, Z. and Mi, C. (2012), "Commercial bank credit risk management based on grey incidence analysis", Grey Systems: Theory and Application, Vol. 2 No. 3, pp. 385-394. https://doi.org/10.1108/20439371211273267