Aspectos demográficos y culturales

The obtained result indicates that the real GDP growth rate has a negative but not

significant impact on the Chinese commercial bank’s credit risk. The result is not consistent with most of previous studies, however, the result is similar to Fofack (2005), which indicate there is no any relationship between GDP and credit risk. Such result can be explained by during the economic boom period, the repayment ability will be increase and then lower the loan default rate, while on the recession period, the default rate will increase due to the sufficient cash hold as a result of lower economic activities.

The relationship between the inflation and credit in this study which is positive related, it can be explained that a high inflation will lead banks increase the interest rate to compensate the losses by the depreciation of money. A higher interest rate will also

increase the debt burden for the borrowers, thus, increase the bank’s credit risk.

In this study, the result shows the interest rate has a significant negative impact on the

bank’s credit risk, however, this result is not consistent with what it was expected, the explanation for such a result can be the banks take a more prudent credit appraisal and monitor process to avoid the lower quality borrower, therefore reduce the effects of higher default probability caused by high debt burden.

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The results for exchange rate and unemployment are both exhibit a significantly

negative relationship between the bank’s credit risks. As the exchange goes up, in

other words, a depreciation of the local currency to the foreign currency will lead the

bank’s credit risk increase, in this study, the Direct Quotation are used, as the export account for almost 33.53 percent of china’s GDP, the export-oriented companies are vulnerable to the exchange rate fluctuations, an appreciation of foreign currencies will increase the cost of imported inputs for the domestic industry thus increase the cost of production, a lower profitability affect their ability to service the loans thus finally increase the default probability of the companies. The negative relationship between the unemployment rate and is not consistent what it was expected in the hypothesis. However, the result can be explained by the bank take more cautions on the credit lending to reduce the increased default rate brought by the higher debt burden.

For the bank characteristic determinants, the empirical results from this study are all consistent with the hypotheses were assumed in chapter III. Evidence suggest the

Chinese commercial banks’ credit risk is negatively related with the bank size, as the

larger banks with a diversified loan portfolio and variety of different borrowers then it can reduce the systematic risks. Moreover, due to the larger banks may involve in variety of businesses rather than those smaller banks which is mainly focus on the interest income, thus have more ability to control for the credit risk than the smaller

ones. The relationship between the regulatory capital ratio and bank’s credit risk also

signify a higher regulatory capital ratio will lead to Chinese commercial banks suffer a lower credit risk. This can be explained by a higher regulatory capital ratio will

provide more cushion for the unexpected losses thus reduce the bank’s credit risk. The

results also indicate the relationship between the bank management efficiency is statistically negative related to the credit risk of Chinese commercial banks. As the bad management hypothesis suggests that inefficiency of management implies a bad skills in the rating the credit, collateral appraisal and loans monitoring, finally lead to a higher level of credit risk.

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The result obtained from this study indicates that different ownership structure will

affect the bank’s credit risk significantly in Chinese commercial banks. The

state-owned banks will bear more credit risks than other type’s commercial banks. According to Sapienza (2004), it can be concluded into three main reasons, the political view indicates that the state-owned banks can be used to pursue the

politician’s private interest, thus such a intervention will lead state-owned banks consider more political factors rather than economic ones. The social view describes that state-owned banks have a duty to correct the market failure brought by private

banks. “Agency view” states that state-owned banks are plagued by corruption and resource misallocation, thus lead to an ineffective management. Therefore, the state-owned banks will bear more risks than others. Furthermore, according to the Jia (2009) considered that state-owned were less monitored by their owners and has a worse corporate governance, it will lead the state-owned banks were likely to be less prudent, thus affect the credit appraisal and monitoring. Moral hazard problem can also lead the state-owned banks to take on less efforts on the credit risk management, cause they firmly believe they will be bailed out by the government.

As the result indicated, 2008 global financial crisis has a no significant effects on the

bank’s credit risk on this study. The result can be explained by two reasons. After the

2008 global financial crisis broke out, as the Chinese banking system is still isolated from the world markets with inexhaustive embrace financial liberalization, the global financial crisis has limited effects on the Chinese banking industry. Moreover, Chinese government is take efforts to simulate the Chinese economy with a 4-trillion investment in domestic market and a proactive monetary policy was carried out to maintain the overall economy growth, thus keep the economic activity. On other hand, as the large amount of money poured into the markets it will cause the inflation and economic bubble (Wang, 2010), thus finally lead to non-performing loans increase in the future. Moreover, as the local government set up the financing platform to lend funds to into funds into project subsidiary companies under the 4 trillion package, the financial leverage of bank lending become much larger, due to some projects without

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a prudent analysis and mortgage the land with uncertainties in generate future profit, lead to a increasing in bank’s credit risk in Chinese commercial banks.