Commercial bank loans for fixed-rate mortgage risk management
Source: China paper Download Center
In recent years, the central bank to control the overheating economy, rising interest rates and increased the burden on mortgage lenders. Loans to rich varieties, increased competitiveness, timely Everbright Bank in 2005 pioneered the species fixed-rate mortgages, followed by China Merchants Bank, Agricultural Bank also introduced the species loans, sales rising, reflecting a fixed-rate mortgage loans interest rates during the advantage.
Fixed-rate loans in foreign countries is a very mature product, in the Netherlands, France, choose fixed-rate loans accounted for 80% of consumer products, but the product in China just started to study risk control is a very important significance.
1, risk identification
The so-called fixed-rate mortgage loans, which is the period of repayment of the loan, the lender and the bank agreed to in advance by a good fixed interest rate to repay the loan, the interest rate does not change with changes in market interest rates. Fixed-rate mortgage principal risks include interest rate risk and credit risk.
1. Interest rate risk
Interest rate risk refers to changes in interest rates in a given period and the duration of assets and liabilities to commercial banks do not match the earnings and net asset value of the potential impact. Fixed-rate loans include extension of the risk of interest rate risk (the risk of long by short-term loans) and prepayment risk. When market interest rates rise, funding costs will increase when interest rates are fixed, the risk of long by short-term loans appear. When market interest rates decline, borrowers tend to low-cost financing, early repayment, banks face a further paragraph in advance to recover the risk of decline in investment income. Interest rate risk is the result of the 20th century the United States savings and loan crisis 80 years one of the main.
2. Credit Risk
Counterparty credit risk is the risk of default or credit rating due to reduced losses. Credit risk is the risk of a system, exists in the bank as a counterparty for all operations.
Credit risk is the result of this subprime mortgage crisis in the United States one of the main. Originated in the United States, the vicious competition among lending institutions, credit loans blindly reduce the threshold, to lend to would have no credit or not so much by the "marginal borrowers", when prices fell after the Federal Reserve to raise interest rates, " marginal borrowers "can not repay the principal and interest rates, mortgage market continued breach of contract. Crisis and then transferred through the securitization of assets to the financial markets intensified today the formation of the sub-prime crisis.
Second, risk measurement
1. The interest rate risk measure
Sensitivity gap method is a measure of interest rate risk of a traditional method that can measure the changes in interest rates on net interest income of banks. Interest rate sensitive gap = Interest rate sensitive assets - Interest rate sensitive liabilities, the IRSG = ISRA-ISRL. If the interest rate changes as △ R, the net interest income changes △ NII, then △ NII = △ R × IRSG. In the interest rate sensitivity gap is positive, rising interest rates will cause banks to increase net interest income, whereas reduced. In the interest rate sensitivity gap is negative, the interest rate rise will reduce the banks net interest income. A disadvantage of the sensitivity gap law can not measure the risk of debt ahead of schedule, and later scholars have proposed duration of the measurement method, interest rate adjustment options such as improved measurement method.
2. Credit risk measure
Credit Risk Analysis of the development of experienced experts, experienced judge, scorecard rating, modeling phase, the current credit rating of commercial banks in China are basically at the stage of the scorecard, only a few banks such as Bank of China bought from abroad rating model, which advanced foreign banks have a relatively complete model. Modeling is the new Basel II internal ratings for credit risk management requirements, application of historical data, through credit transfer matrix, obtained default rates and default losses. At present, because the credit history of China's commercial banks lack of data, modeling has encountered a big obstacle.
3. Interest rate risk and credit risk of the combined measure
Since the 90s of the 20th century, a lot of practice shows that credit risk and interest rate risk are often mixed with the combined effect of the banks, in fact, over the past five years, the United States, Europe, Japan as part of the bank has started to credit risk and interest rate joint measurement of risk. Because most of the implied interest rate and asset quality have realized a strong correlation between the interest rate derivatives, credit risk arising from people start combining the two studies. In recent years some scholars have begun to try to credit risk and interest rate risk into the same system to study, and achieved some results. For example LIU Xiao (2006) method based on the structure and some method on the basis of the credit portfolio model by introducing stochastic interest rates to current interest rates and stock market index, stock market sector index for the state variables, the establishment of a joint credit and interest rate risk measurement model, derived the credit spread and interest rate and stock index and some other important economic variables correlation.
Third, risk control
1. Establish a social credit system
The United States is known by the three major credit market, the Authority EXPERIAN, TRANSUNION, EQUIFAX to engage in credit operations, which were developed with Fair Isaac FICO scoring system of three, according to the customer's repayment history, credit account number, use the credit age, the type of credit being used, new credit accounts opened factors such as score. The scores of lenders usually loan decision-making as a reference. European countries generally managed by the central bank credit matters. Taking into account the development needs of the American model, very long time, in our credit system into the case of urgent need, according to the European model of development, established by the Government authorities, as soon as possible with international standards.
2. Use of financial derivatives
January 2007, Citibank and the Industrial Bank of China completed the first among domestic banks based in Shanghai Interbank Offered Rate (SHIBOR) the standard interest rate swaps. Asset securitization is an effective tool for risk management in the Western countries have a high degree of development, from the statistics, more than half of U.S. mortgage securities processing carried out in 2001, the balance of MBS bonds accounted for the balance of all U.S. 22% Europe 2003, one year asset-backed securities issuance volume reached 217.2 billion euros. In 2005, the China Construction Bank shares in public offering of the inter-bank bond market, "Jianyuan 2005-1 Residential Mortgage Loan Trust asset-backed securities priority" is one of the first policy under the standard asset-backed securities. Interest rate swaps, credit default swaps and asset securitization can effectively control the interest rate risk and credit risk.
3. Charge prepayment penalty
With prepayments may result in loss of interest banks must, therefore, some countries and regions on the early repayment of bank to levy certain fines. Such as Hong Kong, Taiwan, the United States. But the simple fixed interest rate banks charge penalties not to manage interest rate risk of mortgage preferred approach, banks should also act through a comprehensive analysis of the characteristics of early repayment and the relationship between economic change, in the theoretical analysis and the basis of historical data to find the determining factor to establish prepayment model, the future prepayment behavior is more prepared to forecast the corresponding control by hedging to manage risk.
4. The establishment of fixed-rate mortgage interest rate risk of loss reserve
If the market can not provide an effective hedging tool for banks to repay the loan ahead of time it difficult to collect fines, loss of interest rate risk to establish the necessary reserves, loss reserves are a buffer against interest rate risk. In theory, if measured accurately, these fixed-rate mortgage for the prevention and provision for reserves should equal the cost of hedging, it should be equal to the amount of fines to be collected.
Source: China paper Download Center
In recent years, the central bank to control the overheating economy, rising interest rates and increased the burden on mortgage lenders. Loans to rich varieties, increased competitiveness, timely Everbright Bank in 2005 pioneered the species fixed-rate mortgages, followed by China Merchants Bank, Agricultural Bank also introduced the species loans, sales rising, reflecting a fixed-rate mortgage loans interest rates during the advantage.
Fixed-rate loans in foreign countries is a very mature product, in the Netherlands, France, choose fixed-rate loans accounted for 80% of consumer products, but the product in China just started to study risk control is a very important significance.
1, risk identification
The so-called fixed-rate mortgage loans, which is the period of repayment of the loan, the lender and the bank agreed to in advance by a good fixed interest rate to repay the loan, the interest rate does not change with changes in market interest rates. Fixed-rate mortgage principal risks include interest rate risk and credit risk.
1. Interest rate risk
Interest rate risk refers to changes in interest rates in a given period and the duration of assets and liabilities to commercial banks do not match the earnings and net asset value of the potential impact. Fixed-rate loans include extension of the risk of interest rate risk (the risk of long by short-term loans) and prepayment risk. When market interest rates rise, funding costs will increase when interest rates are fixed, the risk of long by short-term loans appear. When market interest rates decline, borrowers tend to low-cost financing, early repayment, banks face a further paragraph in advance to recover the risk of decline in investment income. Interest rate risk is the result of the 20th century the United States savings and loan crisis 80 years one of the main.
2. Credit Risk
Counterparty credit risk is the risk of default or credit rating due to reduced losses. Credit risk is the risk of a system, exists in the bank as a counterparty for all operations.
Credit risk is the result of this subprime mortgage crisis in the United States one of the main. Originated in the United States, the vicious competition among lending institutions, credit loans blindly reduce the threshold, to lend to would have no credit or not so much by the "marginal borrowers", when prices fell after the Federal Reserve to raise interest rates, " marginal borrowers "can not repay the principal and interest rates, mortgage market continued breach of contract. Crisis and then transferred through the securitization of assets to the financial markets intensified today the formation of the sub-prime crisis.
Second, risk measurement
1. The interest rate risk measure
Sensitivity gap method is a measure of interest rate risk of a traditional method that can measure the changes in interest rates on net interest income of banks. Interest rate sensitive gap = Interest rate sensitive assets - Interest rate sensitive liabilities, the IRSG = ISRA-ISRL. If the interest rate changes as △ R, the net interest income changes △ NII, then △ NII = △ R × IRSG. In the interest rate sensitivity gap is positive, rising interest rates will cause banks to increase net interest income, whereas reduced. In the interest rate sensitivity gap is negative, the interest rate rise will reduce the banks net interest income. A disadvantage of the sensitivity gap law can not measure the risk of debt ahead of schedule, and later scholars have proposed duration of the measurement method, interest rate adjustment options such as improved measurement method.
2. Credit risk measure
Credit Risk Analysis of the development of experienced experts, experienced judge, scorecard rating, modeling phase, the current credit rating of commercial banks in China are basically at the stage of the scorecard, only a few banks such as Bank of China bought from abroad rating model, which advanced foreign banks have a relatively complete model. Modeling is the new Basel II internal ratings for credit risk management requirements, application of historical data, through credit transfer matrix, obtained default rates and default losses. At present, because the credit history of China's commercial banks lack of data, modeling has encountered a big obstacle.
3. Interest rate risk and credit risk of the combined measure
Since the 90s of the 20th century, a lot of practice shows that credit risk and interest rate risk are often mixed with the combined effect of the banks, in fact, over the past five years, the United States, Europe, Japan as part of the bank has started to credit risk and interest rate joint measurement of risk. Because most of the implied interest rate and asset quality have realized a strong correlation between the interest rate derivatives, credit risk arising from people start combining the two studies. In recent years some scholars have begun to try to credit risk and interest rate risk into the same system to study, and achieved some results. For example LIU Xiao (2006) method based on the structure and some method on the basis of the credit portfolio model by introducing stochastic interest rates to current interest rates and stock market index, stock market sector index for the state variables, the establishment of a joint credit and interest rate risk measurement model, derived the credit spread and interest rate and stock index and some other important economic variables correlation.
Third, risk control
1. Establish a social credit system
The United States is known by the three major credit market, the Authority EXPERIAN, TRANSUNION, EQUIFAX to engage in credit operations, which were developed with Fair Isaac FICO scoring system of three, according to the customer's repayment history, credit account number, use the credit age, the type of credit being used, new credit accounts opened factors such as score. The scores of lenders usually loan decision-making as a reference. European countries generally managed by the central bank credit matters. Taking into account the development needs of the American model, very long time, in our credit system into the case of urgent need, according to the European model of development, established by the Government authorities, as soon as possible with international standards.
2. Use of financial derivatives
January 2007, Citibank and the Industrial Bank of China completed the first among domestic banks based in Shanghai Interbank Offered Rate (SHIBOR) the standard interest rate swaps. Asset securitization is an effective tool for risk management in the Western countries have a high degree of development, from the statistics, more than half of U.S. mortgage securities processing carried out in 2001, the balance of MBS bonds accounted for the balance of all U.S. 22% Europe 2003, one year asset-backed securities issuance volume reached 217.2 billion euros. In 2005, the China Construction Bank shares in public offering of the inter-bank bond market, "Jianyuan 2005-1 Residential Mortgage Loan Trust asset-backed securities priority" is one of the first policy under the standard asset-backed securities. Interest rate swaps, credit default swaps and asset securitization can effectively control the interest rate risk and credit risk.
3. Charge prepayment penalty
With prepayments may result in loss of interest banks must, therefore, some countries and regions on the early repayment of bank to levy certain fines. Such as Hong Kong, Taiwan, the United States. But the simple fixed interest rate banks charge penalties not to manage interest rate risk of mortgage preferred approach, banks should also act through a comprehensive analysis of the characteristics of early repayment and the relationship between economic change, in the theoretical analysis and the basis of historical data to find the determining factor to establish prepayment model, the future prepayment behavior is more prepared to forecast the corresponding control by hedging to manage risk.
4. The establishment of fixed-rate mortgage interest rate risk of loss reserve
If the market can not provide an effective hedging tool for banks to repay the loan ahead of time it difficult to collect fines, loss of interest rate risk to establish the necessary reserves, loss reserves are a buffer against interest rate risk. In theory, if measured accurately, these fixed-rate mortgage for the prevention and provision for reserves should equal the cost of hedging, it should be equal to the amount of fines to be collected.
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