NetRating: Credit Risk Evaluation for Loan Guarantee Chain in China

Abstract

Guaranteed loans are a common way for enterprises to raise money from banks without any collateral in China. The enterprises are highly intertwined with each other, and hence form a densely connected guarantee network. As the economy is down in recent years, the default risk spreads along with the guarantee relations, and has caused great financial risk in many regions of China. Thus it puts forward a new challenge for financial regulators to monitor the enterprises involved in the guarantee network and control the system risk. However, the traditional financial risk management are based on vector space models, and could not handle the relations among enterprises. In this paper, based on the k-shell decomposition method, we propose a novel risk evaluation strategy, NetRating, to assess the risk level of each enterprise involved in the guaranteed loans. Besides, to deal with the direct guarantee networks, we propose the directed k-shell decomposition method, and extend NetRating strategy to the directed NetRating strategy. The application of our strategy in the real data verifies its effectiveness in credit assessment. It indicates that our strategy can provide a novel perspective for financial regulators to monitor the guarantee networks and control potential system risk.