Credit Scoring in SME Asset-Backed Securities: An Italian Case Study

Andrea Bedin,Loriana Pelizzon,Monica Billio,Michele Costola

doi:10.3390/jrfm12020089

Abstract

We investigate the default probability, recovery rates and loss distribution of a portfolio of securitised loans granted to Italian small and medium enterprises (SMEs). To this end, we use loan level data information provided by the European DataWarehouse platform and employ a logistic regression to estimate the company default probability. We include loan-level default probabilities and recovery rates to estimate the loss distribution of the underlying assets. We find that bank securitised loans are less risky, compared to the average bank lending to small and medium enterprises.

Highlights

The global financial crisis (GFC) exacerbated the need for greater accountability in evaluating structured securities and has required authorities to implement policies aimed at increasing the level of transparency in the asset-backed securities (ABS) framework
Small and medium enterprises play a main role in the European Union in terms of jobs and added value in the real economy
We investigated the default probability, recovery rates and loss distribution of a portfolio of securitised loans granted to Italian small and medium enterprises

Summary

Introduction

The global financial crisis (GFC) exacerbated the need for greater accountability in evaluating structured securities and has required authorities to implement policies aimed at increasing the level of transparency in the asset-backed securities (ABS) framework. ABS represents a monetary policy instrument which has been largely used by the European Central Bank (ECB) after the financial crisis On this ground, in 2010 the ECB issued the ABS Loan-Level Initiative which defines the minimum information requirement at loan level for the acceptance of ABS instruments as collateral in the credit operations part of the Eurosystem. To be eligible for repurchase agreement transactions with the ECB, securitisations have to meet solvency requirements: for instance, if the default rates in the pool of underlying assets reach a given level, the ABS is withdrawn as collateral This repository allows for new research related to ABS providing more detailed information at loan level.

Literature Review

Empirical Analysis

Findings

Conclusions