The outbreaks of IMF crisis and Dawoo group's insolvency lead the Korean banks to realize the needs of sophisticated Credit Risk Model. In addition, there happened the presentation of the consultive paper "a new capital adequacy framework" by Basel Committee(1999.6) and the change of Asset Classification Criteria to FLC(Forward looking criteria) by the Financial Supervisory Service(1999.10).
Unlike market risk and VaR, the measurement of credit risk and development of Credit Risk Model are not easy, for there are relatively sparse and infrequent priced data. Especially in case of Korean Banks, they have little experiences on credit risk evaluations and the poor accumulation of related data. And little empirical research wase done about this subject.
So this article will focus on the Credit Risk Model and in the first place introduce the sophisticated models(Z-Score Model, ZETA Credit Risk Model, Neural Networks, KMV Model and CreditMetrics). Among those models, CreditMetrics is evaluated as well advanced and developed tool for measuring credit risk. So in this article, the case example using the methodology presented by J.P. Morgan was executed.
The suggestions of above result are summarized as the necessities of the introduction of the probability concept, portfolio approach and unexpected loss concept in building Credit Risk Model.
Now our bank regulators should give a lead the banks to establish Internal Credit Risk Model conforming with international standards. Moreover, it is also necessary for the regulators to induce the banks to establish the integrated risk management system as soon as possible.
