Credit Risk Management in the Era of Big Data: From Measurement to Insight

Xianxin Zhao

Credit risk management in the People’s Republic of China in the 21st century has experienced two distinct periods: first, a regulatory-driven period from 2007 to 2015, and then a technology-driven period from 2015 onwards.

Since 2007, the Chinese regulators have systematically enforced Basel II. Through the implementation of Basel II and, in particular, the internal ratings-based approach it required, a relatively comprehensive framework of risk identification and quantification became established, the key pillars of which were internal credit risk rating systems developed by the banks themselves. Risk was no longer merely conceptual, but it could be measured with various metrics and applied to capital management, risk pricing and performance review.

The technology-driven period began in 2015. With the digital transformation and the application of big data, mobile Internet and artificial intelligence, banks could construct borrower-specific, holistic risk profiles, providing contextualised lending products such as consumer instalment loans, supply-chain financing and credit specific to a platform ecosystem (eg, the Alibaba family of platforms). With the growth of financial

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