NetRating: Credit Risk Evaluation for Loan Guarantee Chain in China

Guaranteed loan is a common way for an enterprise to raise money from banks without any collateral in China. It is welcome for both enterprises and banks when the economy is up. However, the situation becomes tough as long as the economy is down. The financial risk caused by guaranteed loans not only makes the enterprise which takes the loan in trouble but also spreads over the intertwined network formed by the related enterprises, thus leading to the financial disaster in certain regions and industries. The financial disaster caused by the guaranteed loans has already happened in China so far. The high interdependency among these enterprises puts forward a new challenge about the credit risk evaluation. The credit risk caused by financial relation by other enterprises is regarded as the outer credit risk, which is close related to the system risk. The outer credit risk is different from the traditional credit risk caused by the financial condition of the enterprise itself (we call it the inner credit risk). No appropriate quantitative methods, including the traditional credit risk management, could measure the credit risk of enterprises involved in guaranteed loans. Therefore, based on the complex network analysis, we put forward a new strategy named NetRating to assess the risk level of each enterprise involved in the guaranteed loans. The application of our strategy in the real data has verified its effectiveness. It seems that our strategy can provide a novel perspective for analyzing the relation based credit risk management during this big data times.