Affect Credit Risk Research Articles

Operational drivers affecting credit risk of mutual guarantee institutions

Purpose– The purpose of this paper is to investigate the drivers influencing the risk of default on mutual guaranteed loans. The authors aim to verify whether default is influenced by the specific business policies of mutual guarantee institutions (MGIs) and to recommend guidelines for directing their operating management.Design/methodology/approach– The authors analyse the guaranteed portfolios of 19 Italian MGIs and investigate the determinants of the defaulted positions at the end of June 2011. The sample consists of 167,777 guaranteed loans, of which 11,349 are in default. Using regression models, we identify the variables related to the business model of MGIs that are significantly associated with default on their positions.Findings– The defaulted positions of MGIs are significantly correlated with the type of issued guarantees. This condition should be considered in defining product and price policies.Practical implications– The authors identify some critical issues in the risk-taking processes of MGIs. The tested hypothesis highlights the opportunities for the optimisation of guaranteed loan portfolios, which is necessary for reducing the profitability/liquidity pressures of these financial institutions and enhancing their efficiency as instruments for mitigating the effects of credit rationing and promoting the revitalisation of small-and medium-sized enterprises.Originality/value– The results are based on an original and reserved dataset, which is not available in public financial statements or public statistics, but is collected directly from the MGIs that are part of the study.

The GSE Reform Debate: How Much CapitalIs Enough?

Over the past eight months, a broad consensus has been emerging as to what the future state of housing finance should look like. There are several plans, including the Corker–Warner bill, under which private-sector entities would continue to originate and service mortgages, with other private-sector entities providing credit enhancement for mortgage-backed securities (MBS). A public entity would be the guarantor of last resort, absorbing the catastrophic risk. The public entity would also provide the securitization platform as well as regulatory oversight. In all these plans, the government’s catastrophic coverage is meant to kick in under extraordinary circumstances; thus the amount of capital the private sector is required to invest must be sufficient to cover all but catastrophic conditions. This article demonstrates that collateral composition, house price experience, and diversification significantly affect credit risk, and thus the capital requirement. The authors’ empirical results demonstrate that 4%–5% capital would have covered Fannie Mae and Freddie Mac (the GSEs) using the 2007 experience. With the GSEs’ current book of business, that is too high, as collateral composition has changed in favor of much more pristine loans. The other important aspects of collateral composition are pool size and geographic diversity. Risk increases with smaller or less geographically diverse MBS pools. Investors are likely to be willing to take credit risk in MBS only if pools are large and geographically diverse. This will make loan-level, risk-based pricing more difficult. It is critical to calibrate the capital needs correctly; if capital requirements are too low relative to the credit risk, the catastrophic government guarantee will be invoked far more than should be the case. If capital requirements are too high, banks will respond by holding more high-quality loans in portfolio, shifting the ultimate credit risk of their lower-quality loans to the government.

Rolling over Corporate Bonds: How Market Liquidity affects Credit Risk

Rolling over Corporate Bonds: How Market Liquidity affects Credit Risk

Determinants of Credit Risk: A Comparative Analysis between Islamic and Conventional Banks

Determinants of Credit Risk: A Comparative Analysis between Islamic and Conventional Banks

PENGARUH CAPITAL REQUIREMENT, LIQUIDITY RATIO, DAN LENDING STRUCTURE TERHADAP RISIKO KREDIT PERBANKAN INDONESIA

This study aimed to analyze the effect of capital requirement, liquidity ratio, and lending structure on Indonesia’s banking credit risk. The credit risk is measured by using Risk Adjusted Return on Capital and Loan/ Total Assets. This study used secondary data with 17 samples from Indonesia’s banking companies that are listed on the Indonesia’s Stock Exchange during the period of 2009 – 2011 and have met certain criteria. The result showed that the variables affect credit risk. Capital had similar result with researches in various countries, which indicates that capital is an important pillar in the face of Banking Risk. Lower liquidity will reduce credit risk, while that level of credit’s concentration which means the bank will determine the depth of understanding of industry’s condition also have a positive influence on credit risk.

Global Crisis and Credit Risk Management by Banks: A Comparative Study of Banks in Pakistan

The world trade environment has worsened significantly after August 2007. The rapid and dynamic changes in the global financial landscape pose various risks to banking institutions. Operating side by side with conventional banks, Islamic banks are equally vulnerable to risks. This paper examines the impact of global financial crisis on the credit risk management of banks operating in Pakistan during the period, 2007-2009. A comparison of the factors, affecting credit risk faced by these banks, is highlighted. Study finds that, whilst the Islamic banking industry has not been left unaffected by the global crisis, Islamic banks in Pakistan are in a relatively strong position. This is because of the industry's high levels of transparency and adherence to a strict code of business conduct and Management efficiency, which means that Islamic banks have the potential to emerge from the crisis in a stronger position than their conventional counterparts.

Credit Risk of Islamic Banks in GCC Countries

This paper is about factors affecting credit risk of Islamic banks in the Gulf Cooperation Council countries using website data covering 25 Islamic banks over 2006 to 2010. This study uses non-performing loans as a proxy for credit risk, which is the dependent variable with three macro-economic, and six firm-specific independent variables. We find income is significantly negatively related to credit risk, which is consistent with findings in other countries about credit risk. Some firm-specific variables such as leverage, liquidity are also relevant variables for credit risk, which results are also consistent with bank behaviour reported in other studies. Credit risk is also broadly affected by both macro and firm-specific factors as found in other regions. Inflation and interest rates do not appear to be relevant. These results would suggest non-performing loan is broadly correlated with factors identified in other studies of banks.

Credit Risk for Small Business in a Basel II Environment

Credit Risk for Small Business in a Basel II Environment