Abstract: Nowadays commercial banks are facing more and more complex risk factors. Credit risk is the most important and complex one. Basel II presents two methods on credit risk management including Standard Approach and Internal Rating-Based Approach (IRB). It also points out that banks which are suitable to do so should apply the IRB approach to estimate the probability of customers’ default by constructing models on historical data. Taking the IRB approach and the actual situation in China into consideration, this paper discusses problems of estimating the probability of customers’ default.

Key words: personal default rate, corporate default rate, logistic, MCLP