Final Dissertation
The University of Bedfordshire
Business School
Department of Accounting and Finance
Advances in Banking
AAF009-3
An assessment of liquidity risk faced by Chinese banking institutions, based on calculation of Loan-to-Deposit Ratio and Liquidity Coverage Ratio
By Wenbo Zhang & 1317611
A project submitted in partial fulfilment of the requirements for the degree of
BA (Hons) International Finance and Banking
08/05/2014
Abstract
After the financial crisis occurred in 2007, China experienced a rapid recovery period. However, the extraordinary development has brought various risks. Liquidity risk is possibly the most severe risk that Chinese banks face. In this paper, the author will assess the liquidity risk among Chinese banks during 2007-2012 with two ratios named Loan-to-Deposit ratio and Liquidity Coverage ratio respectively. Both of them can simply measure the liquidity level of banks through analyzing the results. Furthermore, the interbank offered ratio in China named Shibor will also be considered to emphasize the liquidity crisis in 2013.
1. Introduction
In 1978, China’s reform and opening-up policy started, it represented a period when China began to enhance developing pace rapidly. Benefited from this policy, the structure of Chinese banking industry has changed dramatically in the past 36 years, it has become more liberalized, for instance, four big banks, which are respectively the Bank of China (BoC), the Industrial and Commercial Bank of China (ICBC), the Agricultural Bank of China (ABC) and China Construction Bank (CCB), are established and independent from the People’s Bank of China (Tusaani Kumaravadivel, 2013), meanwhile, there are numerous foreign banks entered in Chinese banking market, such as Standard Chartered and HSBC. Thanks to changes in the banking industry, banks may meet more opportunities and face unpredictable risks.
In 2008, the subprime crisis erupted and reached the peak with bankruptcy of Lehman
Business School
Department of Accounting and Finance
Advances in Banking
AAF009-3
An assessment of liquidity risk faced by Chinese banking institutions, based on calculation of Loan-to-Deposit Ratio and Liquidity Coverage Ratio
By Wenbo Zhang & 1317611
A project submitted in partial fulfilment of the requirements for the degree of
BA (Hons) International Finance and Banking
08/05/2014
Abstract
After the financial crisis occurred in 2007, China experienced a rapid recovery period. However, the extraordinary development has brought various risks. Liquidity risk is possibly the most severe risk that Chinese banks face. In this paper, the author will assess the liquidity risk among Chinese banks during 2007-2012 with two ratios named Loan-to-Deposit ratio and Liquidity Coverage ratio respectively. Both of them can simply measure the liquidity level of banks through analyzing the results. Furthermore, the interbank offered ratio in China named Shibor will also be considered to emphasize the liquidity crisis in 2013.
1. Introduction
In 1978, China’s reform and opening-up policy started, it represented a period when China began to enhance developing pace rapidly. Benefited from this policy, the structure of Chinese banking industry has changed dramatically in the past 36 years, it has become more liberalized, for instance, four big banks, which are respectively the Bank of China (BoC), the Industrial and Commercial Bank of China (ICBC), the Agricultural Bank of China (ABC) and China Construction Bank (CCB), are established and independent from the People’s Bank of China (Tusaani Kumaravadivel, 2013), meanwhile, there are numerous foreign banks entered in Chinese banking market, such as Standard Chartered and HSBC. Thanks to changes in the banking industry, banks may meet more opportunities and face unpredictable risks.
In 2008, the subprime crisis erupted and reached the peak with bankruptcy of Lehman