The seminal works by Beaver  and Altman develop univariate and multivariate models to predict business failures using a set of financial ratios. Beaver uses a dichotomous classification test to determine the error rates that a potential creditor would experience if it classified firms on the basis of individual financial ratios as failed or non-failed. He uses a matched sample consisting of 158 firms  and analyses14 financial ratios. Altman  uses a multiple discriminant analysis technique to solve the ambiguity problem linked to Beaver’s univariate analysis and to assess a more complete financial profile of firms. The analysis draws on a matched sample containing 66 manufacturing firms  that filed a bankruptcy petition during the period 1946-65. Altman examines 22 potentially helpful financial ratios and selects five that provide,when combined, the best overall prediction of corporate bankruptcy. The variables are classified into five standard ratio categories: liquidity, hydroponic dutch buckets profitability,leverage, solvency, and activity ratios.

The literature on the modelling of credit risk for large, listed companies is extensive and gravitates toward either of two approaches: the Z score approach of using historical accounting data to predict insolvency ; and models that rely on securities market information. In city commercial banks, risk modelling can be undertaken using very large samples of high-frequency corporate data and combinations of in-house portfolio data and data from the credit reference agencies to develop proprietary models. Due to a lack of data, modelling approaches have limited applicability to RCBs where credit risk is managed mainly on an ad hoc basis. RCBs’ clients are a distinct kind of client with specific needs and peculiarities that require risk-management tools and methodologies specifically developed for them. The problem of obtaining accurate information about the health of SMEs,while not new, is particularly relevant for patterning firms’ bankruptcy or default.In the past decades, considerable research  has been conducted to determine the rates and causation of such default.

Early research into corporate bankruptcy prediction involved determining which accounting ratios best predict failure, primarily employing multiple discriminant analysis  or logit/probit models. In most of these accounting ratio-basedstudies, ratios are calculated at a predetermined time before bankruptcy  and as such these models are often referred to as static models. For example, Altman and Sabato  apply a distress prediction model estimated specifically for the US SMEs based on a set of financial ratios derived from accounting data. They demonstrate that banks should not only apply different procedures  to manage SME clients as compared with large corporate firms, bato bucket but these organisations should also uses coring and rating systems specifically addressed to the SME portfolio. Other studies focus on the use of data other than accounting data. For example, vonStein and Ziegler  examine the impact of managerial behaviour on failure.The literature has predominantly adopted quantitative approach in CRM research.The quantitative research usually concentrates on measurements and numbers with a view to finding out the association between variables. A number of methods have been used to develop CRM models, including, for example,discriminant function analysis, regression analysis, principal component analysis and factor analysis.

A qualitative research approach was chosen for this study because of its greater exploratory nature and therefore its applicability to this research domain as it focuses on gaining a general understanding of the subject area at an earlier stage.This was vital in light of this study because there is very little research conducted on CRM of RCBs in China. Also, as RCBs began very recently in China, quantitative data and credit risk information are not readily available. Moreover, the customers of RCBs are mainly SMEs and farming households with limited information available on their business failures.The research also uses the case study approach to investigate the CRM issues faced by RCBs. The case study is to provide empirical evidence through interviews to support the argument of this study and to gain perceptions of key players with regard to the appropriateness of the proposed model. The literature has well documented the advantages and limitations of case study approach and their applying conditions. Single case studies have been justified as an appropriate method for theory development.