留学生dissertation网：Risk management is one of the forever un
CHAPTER 1: INTRODUCTION
Risk management is one of the forever unchangeable subjects on commercial bank management. In the circumstances of modern market economics, with the development of financial derivates and 留学生dissertation网innovation of financial instruments, the banking risks are becoming huger than before, the category and behavior form are becoming much more diverse and complex than before as well. Especially after the financial crisis, today’s weak and volatile market makes commercial banks uneasy about their business. All the banks are eager to look for more business opportunities internationally and explore a bigger potential market by overseas operation.
Among the potential markets, China can be seen as the most tempting one to the foreign investors. As the largest developing country, the performance and role of China in world economy was much discussed as the country’s economic growth has been in a period of stabilization and recovery. According to the National Bureau of Statistics, even though arrested the downturn from global financial crisis, China's GDP still grew by 8.9% in 2009, investment expanded at a faster pace, and consumption still maintained a steady growth by 16.9% in order to make up for lost export business during the recession . In the past 20-odd years, China’s capital market has opened step by step to the outside world and showed its profit potential to the investors. Since then, many foreign banks have substantially increased their presence in China by opening new branches, acquiring equities of local banks, and advancing into new areas of business operation once largely inaccessible to them. The Metropolitan Bank & Trust Company (Metrobank) is an example of those foreign banks.
Metropolitan Bank and Trust Company (Metrobank) is the biggest full-services bank in Philippines and also is the flagship company of the Metrobank Group. Its subsidiaries and affiliates include: Banks, Investment Corporations, Leasing & Finance Co., Insurance Corporations, Securities Corp., Automotive Corp. (a joint venture with Toyota Motor Corp. and Mitsui & Co., of Japan), Remittance Companies, Credit Card Co. and Traveling Co. etc. As a universal bank, it provides a full range of banking services to large local and multinational corporations, middle market, high net worth individuals, and retail segments. Besides the 552 domestic branches, Metrobank’s international presence currently spans over 800 offices in 21 countries. Outside the Philippines, it has branches, offices and subsidiaries in USA, Britain, Spain, Japan, Korea, Singapore and China (including Hong Kong and Taiwan). Among these, China no doubt is one of the most important oversea markets of the Bank. Therefore, in this thesis, my research object will be Metrobank’s Shanghai Branch, which was established as representative office in 1992 and officially promoted to be a branch in October, 2002. Following is the brief organizational system of Metrobank: #p#分页标题#e#
Like most global commercial banks whose primary function is to accept deposits and lend money, Metrobank Shanghai Branch renders such services as Import/export Financing, Foreign Currency Deposits, Foreign Currency Lending, Sale and Purchase of Foreign Exchange for clients. With arising attention in Chinese market, last year Metrobank invested heavily in building a Metrobank plaza in the center of city and established another two sub-branches that render clients services with Chinese style.
As a comparative defensive bank, Metrobank realized that opportunity and challenge always come with the bank’s development, especially when it is exploring into a new market. After the establishment of Shanghai Branch, an ideal situation of Metrobank is to take full advantage of the tight connections of Head Office and its oversea branches with Chinese communities to gain itself more business opportunities. However, in the real world, China is still a half-opened market that requires banks to be more local than foreign funded. Therefore the challenges coming up to the Metrobank will be the following regulatory changes and a step closer to the goal by switching to local incorporation in China.
After several years rendering credit services in Shanghai, Metrobank noticed a phenomenon that in the face of gathering worldwide economic slowdown, the Chinese government finally relaxed earlier controls on bank lending in local market. However, there is a mismatch between the contribution of enterprises to economic growth and the amount of credit they have obtained. Most capitals and loans go to the least deserving customers- the many clapped-out large state-owned enterprises instead of the far more numerous thriving private sector companies short of cash. The most deserving borrowers, China’s dynamic entrepreneurial Small & Medium Enterprises (SMEs), mainly came away empty-handed when all this new lending was being handed out. According to the National Bureau of Statistics, at the end of 2009, around 95.6% of enterprises in China are SMEs, which account for 58% of GDP, 61% of total sales, 48.2% of taxes, and about 75% of employment in urban areas. Meanwhile, SMEs’ participation in international trade and outward investment is also very significant, representing 66.85% of the total import and export values and about 75% of outward investment. However, in contrast to its contribution to the economy, the difficulty of SMEs to obtain external financing from formal financial institutions or banks is quite impressive. In the China Center for Economic Research , statistics showed that no more than 0.6 million of over 40 million SMEs could obtain bank loans in 2008. In other words, over 97% of SMEs in China have no access to formal financing.
With an awareness of the growing significance of SMEs in China's economy and their deep needs to raise fund, a main developing business in Metrobank Shanghai Branch niches to the credit service and loans to those SMEs in China and help them to finance sufficient working capital for operation. However, when the Bank concentrates its business on lending business for SMEs, it realized that China’s economy is operating under a unique economic system. It is still a ‘Governmental Economic’ or ‘economic under central planning’ that the ‘visible hand’ of the Central government plays an important role in the overall business environment. To a foreign commercial bank, it will be necessary to render services with Chinese style and subject itself to Chinese rules. Besides, the uncertainty and informality of #p#分页标题#e#http://www.ukthesis.org/dissertation_writing/Finance/SMEs have already added up the credit difficulties. Thus, it will be more important for Metrobank Shanghai branch to extend its efforts to better adjust strategy and assign economic capital by considering its actual situation in China.
1.2 Thesis objective(s): Goal / means / constraints
The thesis objective is, through the research about Metrobank Shanghai Branch’s situation and regulations of international practice, to recommend its current lending process aiming to working capital loans for Small and medium-sized enterprises (SMEs) in China. The recommendation will cover the aspects of specific lending technologies, sufficient indicators and credit risk control measurement based on the risk identification and analysis of Chinese SMEs.
1.3 Problem definition:
After research, it is found that with the rapidly increased operation of working capital loans for Small and Medium Enterprises (SMEs) in China, the Metrobank Shanghai branch seems lack enough authority and sufficient practices to conduct a comprehensive lending process by itself to meet its recent business demands. Under the centralized controlling policy, all the commercial loan cases need to be submitted to Philippians’ Head Office for the examination and approval after preliminary selection and analysis from Shanghai branch. It usually takes over a month to approve this lengthy processing application, which results an expected loss of target customers and inefficient lending operation.
Besides the length, the business is also limited by the arising conflicts between parent and branch because of the different opinions for credit risk measurements. All the lending strategies and risk assessments are designed by Philippians’ Headquarter that have limit understanding about Chinese SMEs. Whether they can sufficiently fit the cases in Shanghai branch and can adapt in China’s circumstance is still questionable.
On the other hand, frustrated by the business immaturity and information asymmetry, Metrobank Shanghai Branch finds it is difficult to evaluate the securitization of Small and medium-sized enterprises because most of them lack of certain credit history and regular financial records in the public credit system. The reliability of financial statements from SMEs in China is also doubtable since most of them have 2 or 3 different versions for different parties like to banks and Tax bureau. In order to solve this problem, it is essential for Metrobank to evaluate and adjust the current lending technologies for better information processing.
1.1 Research questions
This thesis is committed to provide a comprehensive framework as a blueprint for assessing and controlling credit/loan risk of Small and Medium-sized Enterprises (SMEs) for Metrobank Shanghai branch. Based on the identified problems in last part, following research question need to be clarified:#p#分页标题#e#
1) What type of commercial loans is offered to SMEs in Shanghai Branch?
2) What causes the high risks from SMEs’ credit facility to Foreign Commercial bank (from both perspectives of Information asymmetry* and target clients*)
3) What is the current lending process, including the credit risk management and assessing indicators in Metrobank Shanghai Branch to give those loans to SMEs?
4) Can all the credit risks be sufficiently covered in the lending process?
5) What improvement can be made for more effective and efficient practice?
These 5 main research questions will be answered and further discussed in Chapter 4 based on specific cases in the research company.
1.4 Chapter’s summary
The first chapter can be regarded as an introduction of the whole report. A case study based on Metrobank Shanghai Branch indicates the importance of systematic framework for credit risk management and the difficulties of practicing it in a different circumstance (in China’s actual condition). At the beginning, there is an overview about the macro business environment for foreign banks in China. Following with an introduction of Research Company, the objective has been stated for this thesis---to give recommendation for a comprehensive framework in credit risk management for Metrobank Shanghai branch aim to Small and Medium-sized Enterprises (SMEs) in China’s specific circumstance.
留学生dissertation网With this purpose, the main problem faced by the Bank has been identified and further extended by 4 main research questions. Those questions will be answered in Chapter 4 according to the specific data collected from Metrobank Shanghai branch.
Literature Review will be showed in Chapter 2, which is another essential part of this report. In this chapter, credit risks to commercial banks will be identified in a theoretical perspective. Based on that, several models for credit/loan risk management will be explored and compared according to their different characters and functions.
Chapter 3 will explain the selection of the research methods and justify the choices that have been made. This thesis is exploratory in nature. It seeks to identify the challenges faced by Metrobank http://www.ukthesis.org/dissertation_writing/Finance/Shanghai branch to assess and control credit risks in Chinese regulatory environment. Research strategy and phases used for this case will be described in this chapter with the motivation methodology applied.
With the references of reviewed literature and research findings, conclusion and recommendations will be made in Chapter 5.
