A Critical Study of Commercial Banks' Credit Risk Assessment and Management for SMEs: The Case of Agricultural Bank of China

In China it is difficult for small and middle-sized enterprises (SMEs) to obtain capital and funds through financing from commercial banks because of imperfect financial environment in China and SMEs’ instability contributing to relatively high risks for credit. However, the development of SMEs plays a pivotal role in the Chinese economy and it is important to study the credit financing problem for SMEs. Based on a detailed and critical case study, this paper studies how Agricultural Bank of China (ABC) deals with SMEs’ financing and explores innovative methods. It provides a good example in credit financing for SMEs among commercial banks in China, including credit rating model, credit policies targeted at SMEs and risk control system. From the ABC’s policies towards SMEs, three main suggestions are provided at the end, including preferential policies of credit financing for SMEs, flexible new risk assessment mechanism and adjustment to local business conditions.