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Legislative Impact on Lending: Credit Risk Management in China

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  • Zhaohua Li

    ()
    (Lincoln University, Faculty of Commerce, P. O. Box 84, Christchurch, New Zealand 7647, New Zealand)

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    Abstract

    The Chinese government established the Act on Commercial Banks 1995 to enforce and regulate commercial banking activities. The government envisaged that the Act, together with other bank reforms, would improve credit risk management practice among commercial banks, hence, prompting the banks to reduce and ultimately stop local government directed policy lending to state-owned enterprises (SOEs). This paper examines the lending behavior of a government-controlled commercial bank before and after the passage of the Act. We find that the bank tightened control of the credit risk of borrowers after the passage of the Act. We also find that SOEs are charged a rate of interest higher than that charged to private firms.

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    Bibliographic Info

    Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Review of Pacific Basin Financial Markets and Policies.

    Volume (Year): 14 (2011)
    Issue (Month): 04 ()
    Pages: 617-645

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    Handle: RePEc:wsi:rpbfmp:v:14:y:2011:i:04:p:617-645

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    Related research

    Keywords: Credit risk; SOEs; private borrower; China;

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