Credit Portfolio Research Articles

CREDIT RISK, LIQUIDITY RISK AND FEEDBACK EFFECTS ON MICROFINANCE INSTITUTIONS: AN EMPIRICAL EVIDENCE IN ECUADOR

Ten years of data from an Ecuadorian microfinance entity together with data on macroeconomic variables was analyzed. Through a Vector Autoregressive Model, we established a one-way causal relationship between credit and liquidity risks. The model includes the feedback effects through successive deterioration of credit portfolio and illiquidity spreading and the effects of macroeconomics and financial variables on these risks. Our results corroborate the importance of incorporating new contagion channels in microfinance institutions’ risk management, which helps microfinance institutions become financially sustainable, generating a relatively stable level of profitability that can improve the entrepreneur’s economic situation.

Quantum algorithm for calculating risk contributions in a credit portfolio

Finance is one of the promising field for industrial application of quantum computing. In particular, quantum algorithms for calculation of risk measures such as the value at risk and the conditional value at risk of a credit portfolio have been proposed. In this paper, we focus on another problem in credit risk management, calculation of risk contributions, which quantify the concentration of the risk on subgroups in the portfolio. Based on the recent quantum algorithm for simultaneous estimation of multiple expected values, we propose the method for credit risk contribution calculation. We also evaluate the query complexity of the proposed method and see that it scales as widetilde{O} (sqrt{N_{mathrm{gr}}}/epsilon ) on the subgroup number N_{mathrm{gr}} and the accuracy ϵ, in contrast with the classical method with widetilde{O} (log(N_{mathrm{gr}})/epsilon^{2} ) complexity. This means that, for calculation of risk contributions of finely divided subgroups, the advantage of the quantum method is reduced compared with risk measure calculation for the entire portfolio. Nevertheless, the quantum method can be advantageous in high-accuracy calculation, and in fact yield less complexity than the classical method in some practically plausible setting.

Reduced-form framework for multiple ordered default times under model uncertainty

In this paper we introduce a sublinear conditional operator with respect to a family of possibly nondominated probability measures in presence of multiple ordered default times. In this way we generalize the results of Biagini and Zhang (2019), where a reduced-form framework under model uncertainty for a single default time is developed. Moreover, we use this operator for the valuation of credit portfolio derivatives under model uncertainty.

Bounded rationality in bank credit decisions for SME lending: Evidence from bankers in Malaysia

A behavioural finance perspective offers possible ways for bankers to enhance small and medium-sized enterprises’ (SMEs) access to financing and the quality of a bank's credit portfolio but is neglected in the present bank policy and practice. This paper studies the fundamental and behavioural factors that determine credit decisions for SMEs by bank officers in Malaysia using the theoretical lenses of bounded rationality. In finding ways to reduce behavioural biases, the effect of the human capital factor on credit decisions is examined. The data for the study were obtained from 161 bank credit officers in development financial institutions and commercial banks by using stratified random sampling that sufficiently represents the local banks' population in Malaysia. Hierarchical multiple regressions were used to examine the relationship between the fundamental factors, behavioural factors and human capital factors on bank officers' credit decisions on lending to SMEs. In the assessment of the fundamental factors, regression results showed that character and condition have a positive relationship with the credit decision making. In the behavioural factors assessment, intuition, optimism and overconfidence are influential in behavioural credit decision making, while the interaction analysis shows that credit experience and emotional intelligence can reduce the influence of behavioural factors on bank officer credit decisions for lending to SMEs. Generally, the findings of this study confirm the theoretical framework of the bounded rational credit decision and would be valuable in enhancing the theory, practice and policy regarding lending to SMEs, particularly in minimising behavioural biases in lending decision making. This research offers bounded rational perspectives on bank credit officers' decisions. The research framework revealed that bank credit officers are influenced by both rational (fundamental factors) and irrational (behavioural factors) in their credit assessment and decision-making process. Presumably, the influence of behavioural biases could have negative effects on SME financing access and credit portfolio quality. In addition, the framework provides insights into ways to reduce behavioural biases to improve rationality in credit decision making and credit portfolio quality.

Quantitative Management of Credit Portfolios

To investigate the role of TCR signaling in the exit of CD4⁺ T cells from cell cycle, we took advantage of a low frequency TEa T cell adoptive transfer technique as well as the Y-Ae mAb to interrupt Ag/MHC recognition before the completion of clonal expansion. Termination of TCR signaling after 36 h of Ag exposure caused an immediate reduction in cell size and deceleration of G₁—>SG₂M phase cell cycle progression. As a consequence, clonal expansion in the absence of durable TCR signaling decreased by two-thirds. Thus, CD4⁺ T cells scan for the presence Ag throughout their clonal expansion response, and continuously adjust their rate of cell growth and G₁—>S phase transition to match their intensity of TCR signaling.

Strategi Pelaksanaan Program Pemulihan Ekonomi Nasional Pada Kantor Pusat PT. Bank Sulselbar

This study purposed to find out the implementation strategy of the National Economic Recovery program at the Head Office of PT. Bank Sulselbar using qualitative research methods, the number of informants was 10 people. The results of the study showed that 1) objectives (realization of goals, objectives and targets) by appointing divisions, setting targets, forming a special program, namely increasing the productive loan portfolio of the MSME segment. Obstacles to be overcome included credit to new debtors, low purchasing power in the Covid-19 era, credit period of only 6 months, decreased growth, implementation of Large-Scale Social Restrictions (PSSB), physical distancing and social distancing, business actors who saw economic growth conditions. 2) the method was to make the distribution of guidelines for PEN funds Number SR/072/DRK/VIII/2022, increase the consumer credit portfolio, productive for the corporate and syndicated segments. 3) facilities, namely completing facilities consisting of branch offices, facilities, social media, the use of mass media and establishing MSME Centers to empower business groups and foster MSMEs which were expected to synergize.

Can machine learning models save capital for banks? Evidence from a Spanish credit portfolio

We study the impact of machine learning (ML) models for credit default prediction in the calculation of regulatory capital by financial institutions. We do so by using a unique and anonymized database from a major Spanish bank. We first compare the statistical performance of five models based on supervised learning like Logistic Lasso, Trees (CART), Random Forest, XGBoost and Deep Learning, with a well-known model like Logit. We measure the statistical performance through different metrics, and for different sample sizes and features available. We find that ML models outperform, even when relatively low amount of data is used. We then translate this statistical performance into economic impact by estimating the savings in capital when using an advanced ML model instead of a simpler one to compute the risk-weighted assets following the Internal Ratings Based (IRB) approach. Our benchmark results show that implementing XGBoost instead of Logistic Lasso could yield savings from 12.4% to 17% in terms of regulatory capital requirements.

Is bank risk appetite relevant to bank default in times of Covid-19?

The paper aims to analyze the effect of bank risk appetite on banks' default probabilities during the year of COVID-19 in 12 countries while controlling for bank-specific and country-specific effects over time. A System Generalized Methods of Moments (GMM) model of default probabilities is estimated over the periods 2010–2021. This study confirms the ‘risk-mitigation view’, in which banks with higher ESG scores are more prudent in lending and have better relationship management, reducing the probability of bank default. Underperforming banks tend to have a higher portion of risky loans in their credit portfolio and therefore demonstrating a higher default propensity. Bank risk appetite, ESG, asset quality, economic growth, and currency depreciation appear to be material drivers for bank risk. We find that a lower risk appetite ratio (corresponding to higher risk appetite) is associated with higher estimated default probability during the COVID-19 outbreak, identified through interaction with a single time dummy for 2020 (the break-out year of the pandemic).

The more the better? Information sharing and credit risk

Estimating correctly the borrower credit risks is the task of particular –and growing- importance for the banks all around the globe. Formal information sharing mechanisms are aimed to reduce information asymmetry in the credit markets and to enhance the precision of those estimates. In the academic literature, however, the answer to the question of whether more detailed borrower information accumulated and shared by credit bureaus and credit registries is always associated with higher quality of bank credit portfolios and lower credit risks is not completely unambiguous. More credit information disclosed by information intermediaries tend to result into the weaker disciplinary effect of credit history, which means higher credit risks. At the same time, the accuracy of assessing the creditworthiness of borrowers grows due to an increase in the predictive power of scoring models, which leads to a reduction in credit risk. In this paper we make a first attempt to examine the nonlinearity of this effect. We study the relationship between the depth of the credit information disclosure and the stability of the banking sector in terms of credit risks. Based on data on more than 90 countries for 2004–2020, we show that the relationship between disclosure and credit risk is non-linear: we observe the lowest levels of credit risk at minimum and maximum levels of disclosure depth. We analyze the influence of the country institutional quality and financial development on the nature of the relationship. We show that credit risks decrease with increasing depth of disclosure by credit bureaus and credit registers in in a high-quality institutional environment and in well-developed financial markets.

Valuating consumer credit portfolios

This paper proposes a model that associates borrower credit risk with the cash flow method to assess the economic value of a consumer credit portfolio. A Monte Carlo simulation applying the method to an illustrative loan reveals that the lending standards of the institution, captured in the model by the expected and unexpected losses of the contract according to Basel II Internal Rating-Based Approach, is a key driver of the portfolio's intrinsic value, lending support to the evidence that a bank's credit policy and a bank's valuation are associated.

ANALISIS KOMPARASI TINGKAT RISIKO PEMBIAYAAN JUAL BELI DENGAN BAGI HASIL PADA BANK MUAMALAT KCP. BONE

Despite a fairly rapid development of Islamic Banking in Indonesia, but the composition of cost is still imbalance. This is proved by the nomination of skim murabahah (consumptive sale and purchase) compared with skim mudarabah (products division/productive). The cost of mudarabah is the cost of real sector and considered has high risk. Therefore, syariah bank needs to apply risk management and evaluate the level of maximum risk that might happen on the costs spent. The data were analyzed using credit risk method. Credit risk is a model of risk measurement of costs portfolio. This model was introduced by Credit Suisse Financial Products (CSFP) in 1997.This approach wasmaximum loss measurement from default credit portfolio. Data input credit risk are as follow; (exposure of default, default rates, probability of default, and expected loss) after having results of data analysis and then were analyzed using trend analysis to measure the frequency of risk level happened in the period of 2013-2014 and used analysis of hypothesis test one sample T test to obtain the comparison of risk level of sale and purchase of product division. The results of trend analysis express that the frequency of the occurrence of financial risks is more dominant on the sale and purchase contract, it can be seen in June 2013 until December 2014 NPF murabahah continuously improved, it is different with mudarabah (product division) that still run well. While the results of comparative test analysis One sample T test state that the cost of murabahah contract has higher risk measured from the high costs of financing bogged down experienced in this case the collectability category 5 at the end has impact on the level of achievement of profitability of Muamalat banks.

Risk-sensitive credit portfolio optimization under partial information and contagion risk

This paper investigates the finite horizon risk-sensitive portfolio optimization in a regime-switching credit market with physical and information-induced default contagion. It is assumed that the underlying regime-switching process has countable states and is unobservable. The stochastic control problem is formulated under partial observations of asset prices and sequential default events. By establishing a martingale representation theorem based on incomplete and phasing out filtration, we connect the control problem to a quadratic BSDE with jumps, in which the driver term is nonstandard and carries the conditional filter as an infinite-dimensional parameter. By proposing some truncation techniques and proving uniform a priori estimates, we obtain the existence of a solution to the BSDE using the convergence of solutions associated to some truncated BSDEs. The verification theorem can be concluded with the aid of our BSDE results, which in turn yields the uniqueness of the solution to the BSDE.

Single-Index Importance Sampling with Stratification

In many stochastic problems, the output of interest depends on an input random vector mainly through a single random variable (or index) via an appropriate univariate transformation of the input. We exploit this feature by proposing an importance sampling method that makes rare events more likely by changing the distribution of the chosen index. Further variance reduction is guaranteed by combining this single-index importance sampling approach with stratified sampling. The dimension-reduction effect of single-index importance sampling also enhances the effectiveness of quasi-Monte Carlo methods. The proposed method applies to a wide range of financial or risk management problems. We demonstrate its efficiency for estimating large loss probabilities of a credit portfolio under a normal and t-copula model and show that our method outperforms the current standard for these problems.

ANALISIS PORTOFOLIO KREDIT, RISIKO, DAN RETURN BANK UMUM KONVENSIONAL

This study aims to determine the credit portfolio strategy (focus or diversification strategy) based on the economic sector in conventional commercial banks grouped by business activity (BUKU) in the period January 2016 - December 2018 and analyze the effect of credit portfolio concentration and credit risk on rates of return. This study uses secondary data obtained from Indonesian Banking Statistics at the Financial Services Authority (OJK). This study used 4 samples, namely BUKU I, BUKU II, BUKU III, BUKU IV. Bank return as dependent variable was measured by Return on Assets (ROA) whereas Concentration of Credit Portfolio as independent variable was measured by the Herfindahl-Hirschman Index (HHI). The mediating variable (Credit Risk) was measured by Non-Performing Loans (NPL). This study used panel data regression with fixed effect model to test direct effects and Sobel Test to test indirect effect. The results showed that the concentration of the credit portfolio had a positive effect on credit risk, while credit risk had a negative effect on return. In addition, the mediating role of the credit risk variable is not proven to affect the effect of the credit portfolio and credit risk. In conclusion, the credit portfolio concentration strategy in certain sector can increase credit risk so that it tends to reduce the rate of return. Thus, this research suggests that banks need to diversify their credit portfolios to minimize credit risk.an risiko kredit.

International Organizations and Development in Nigeria: A Study of International Monitoring Fund (IMF) and World Bank

This study is an attempt to investigate the responsibilities of international monetary fund (IMF) and World Bank in the development of Nigeria from 2010-2015. The objective of the study is to assess the relationship between the level of implementation of loan conditions and an increase in development loan assistance to Nigeria by World Bank and IMF, to ascertain whether there is a link between Nigeria’s economic growth and development loan assistance to Nigeria by World Bank and IMF and investigate whether there is any significant relationship between Nigeria’s higher ability to service loans and increase in World Bank and IMF credit portfolio to Nigeria within the period under review. The dependency theory was adopted as the theoretical framework of analysis. The research adopted a qualitative design to describe the various tranche of loan and grants by IMF and World Bank. The result of the findings indicates that although IMF and World Bank claimed to be helping Nigeria and other African countries to deal with the issues of underdevelopment and stagnation through their so called policies that necessitate growth and development, it is found out that these policies are the basic cause of the underdevelopment for Nigeria, that instead of improving equality, has done the reverse by widening income inequality, poverty, food insecurity and hence deteriorating the standard of living of the Nigerian people. However, this study recommends that Nigeria must move on, from solely depending upon International Organisations. An emerging industrialising country would need a number of policies to develop the tangible and intangible infrastructure required to build up a competitive industrial sector. These would involve massive investment in providing such tangible infrastructures as roads, ports, efficient telecommunication and postal services, electricity, and water supply. For this reason, the governments should focus on developing one infrastructure at a time and, must be transparent and accountable and desist from foreign dependence for infrastructural capital. Keywords: International Organizations , International Monitoring Fund (IMF) and World Bank DOI: 10.7176/JESD/13-14-05 Publication date: July 31 st 2022

FEATURES OF RECEIVING, ACCOUNTING AND AUDIT OF LOANS IN FOREIGN CURRENCY AT THE ENTERPRISE

The article is devoted to the features of receiving, accounting and auditing of a loan in foreign currency at the enterprise. The topicality of the topic is explained by the fact that ensuring the sustainable development of enterprises requires adequate financing at the expense of various components of equity capital, borrowed capital and loan capital, including lending in foreign currency. the share of balances for loans granted in foreign currency was 29% of the loan portfolio of commercial banks in 2021. This indicates the presence of lending in foreign currency and the need for research and scientific substantiation of the mechanism for obtaining, clearing and auditing loans in foreign currency. The object of the study is crediting, accounting and auditing in foreign currency at the enterprise. The purpose of the study is to substantiate the peculiarities of obtaining, accounting and auditing foreign currency loans at the enterprise to ensure complete and reliable information about the financial obligations of the enterprise. The methods of the study are analysis and synthesis, system analysis, statistical analysis to study the dynamics and structure of loans granted to enterprises by commercial banks in foreign currency, the dynamics of average annual interest rates on loans granted to enterprises. Conditional periods based on indicators of balances of funds for loans granted in foreign currency and the share of loans in foreign currency in the credit portfolio of commercial banks are determined. The first conditional period of development of lending in foreign currency lasted until 2008. It is characterized by a high and constantly growing demand for loans in foreign currency; the share of balances on loans granted in foreign currency was 59% in 2008, a decrease in the exchange rate and low interest rates for using loans in foreign currency against the national currency. The second conditional period of development of foreign currency lending began during the financial crisis of 2008. It is characterized by a 5 times decrease in the balances of loans granted in foreign currency due to the introduced institutional restrictions. Features of lending in foreign currency are determined. The sequence of audit stages of crediting in foreign currency at the enterprise has been developed. Conclusions – despite the institutional restrictions on lending in foreign currency introduced after the financial crisis of 2008, business entities form demand for loans in foreign currency from residents and non-residents. Accounting for loans in foreign currency has certain features and complexity compared to accounting for loans in national currency. Correspondence of accounting accounts for loans received in foreign currency according to typical operations: receiving a loan in foreign currency, accrual and payment of interest for using the loan, repayment or extension of the loan in foreign currency, revaluation of the loan in foreign currency and display of exchange rate differences.

SME CREDIT RISK MODELLING IN SOUTH AFRICA: A CASE STUDY

This paper examined the funding conundrum by assessing the success rate of applications of small and medium sized enterprises (SME) for commercial bank funding. A quantitative group analysis was done on the overdraft obtained from one of the leading financial institutions in South Africa to determine the drivers of default. The SME scorecard was developed using logistic regression on credit applications over a seven-year observation period to analyse the default experience as part of credit risk management. The robustness, stability and relevance of an application scorecard is enhanced by the reject inference process and inclusion of bureau information. Small businesses operating in the service sector and having a long-standing rapport with the bank can easily access commercial bank funding. SMEs in the construction industry with a high number of credit enquiries are unlikely to survive the stringent conditions of the bank lending criteria. It is the prerogative of the principal business owner to honour their financial obligations across the credit industry if commercial bank funding is desired. Their credit quality, as reflected in the bureau information, forms the fulcrum of the SME application scorecard. The model developed in this study can be used as a tool to reduce defaults and serious delinquencies in boarding new applicants. Furthermore, the model can be applied to determine risk tendency and monitor the performance of SME credit portfolios.

Asymmetric asset correlation in credit portfolios

This study proposes a novel time-varying credit risk model to describe the cyclicality and asymmetry of asset correlation in credit portfolios. Our proposed model is developed based on a GJR-GARCH type volatility and copula-based conditional dependence. We prove that our model outperforms the regulatory model for the U.S. credit portfolios with strong empirical evidence of cyclical and asymmetric asset correlation. Furthermore, we argue that Basel’s criteria of asset correlation may be insufficient during economic downturns.

On-Site Inspecting Zombie Lending

“Zombie lending” remains a widespread practice by banks around the world. In this paper, we exploit a series of large-scale on-site inspections made on the credit portfolios of several Portuguese banks to investigate how these inspections affect banks’ future lending decisions. We find that an inspected bank becomes 20% less likely to refinance zombie firms, immediately spurring their default. Overall, banks seemingly reduce zombie lending because the incentives to hold these loans disappear once they are forced to recognize losses. This paper was accepted by Tomasz Piskorski, finance. Funding: D. Bonfim and G. Cerqueiro acknowledge financial support from Fundação para a Ciência e a Tecnologia [Grants PTDC/EGE-OGE/30314/2017 and UID/GES/00407/2013]. H. Degryse acknowledges financial support from Fonds Wetenschappelijk Onderzoek. S. Ongena acknowledges financial support from the Horizon 2020 European Research Council [Grant ERC ADG 2016 - GA 740272 lending]. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2022.4452 .

PERHITUNGAN RISIKO KREDIT KPR PADA BANK XYZ MENGGUNAKAN METODE CREDITRISK+

Credit risk is a risk that is often encountered by banks in lending, especially mortgages. Banks can get losses if the risk is not anticipated properly. The purpose of this study is to estimate the number of losses (expected loss and unexpected loss) obtained by Bank XYZ due to default debtors and to estimate the amount of economic capital that must be provided by Bank XYZ in anticipating unexpected losses. The study was conducted using the CreditRisk+ method with a Poisson distribution approach. The ratio between expected loss and unexpected loss obtained from the calculation results is 57%. With the value of economic capital that needs to be provided by Bank XYZ is Rp. 647.594.176.768,-. This means that Bank XYZ needs to monitor the outstanding credit of their debtors who experience default in the credit portfolio in order to avoid possible losses and provide economic capital to cover these losses. So that the estimated value of economic capital can be used as a capital benchmark to anticipate maximum losses and as an indicator for Bank XYZ to earn income from credit activities.