Early Repayment Research Articles

Random survival forest for competing credit risks

Random survival forest for Competing Risks (CR Rsf) is a tree-based estimation and prediction method. The applications of this recently proposed method have not yet been considered in the extant credit risk literature. The appealing features of CR Rsf compared to the existing competing risks methods are that it is nonparametric and has the ability to handle high-dimensional data. This paper applies CR Rsf to the financial dataset which involves two competing credit risks: default and early repayment. This application yields two novel findings. First, CR Rsf dominates, in terms of prediction accuracy, the state of art model in survival analysis-Cox proportional hazard model for competing risks. Second, ignoring the competing risk event of early repayment results in an upwardly-biased estimate of the cumulative probability of default. The first finding suggests that CR Rsf may be a useful alternative to the existing competing risks models. The second has ramifications for the extant literature devoted to the estimation of the probability of default in cases where a competing risk exists, but is not explicitly taken into account.

Theoretical aspects of liquidity management in a commercial bank

The study presents various approaches to the interpretation of the concept of liquidity of a credit institution and its essence. Differences are highlighted that reflect the priority aspects in assessing the liquidity of a commercial Bank from the authors ‘ point of view. The Bank of Russia’s liquidity ratios and ratios are also presented. The research resulted in a change in the Bank’s structure, since the most important element of the formation of a commercial Bank’s liquidity management system is the improvement of the organizational structure responsible for forecasting liquidity and selecting management tools. When improving such a structure, it should be ensured that the structure is integrated into the unified management system of a commercial Bank, that it is linked to other structural divisions of the Bank, and that it has a comprehensive approach to managing liquidity risk, along with other risks. It is concluded that the most effective model is the creation of a single risk management Department, which includes a liquidity management Committee. At the same time, all structural divisions of the Bank should be included in the General system. The recommendation to evaluate the obligations taking into account the possibility of their early repayment is justified.There is no conflict of interests.

Impact of Early Repayment Risk on Domestic MBS Basic Assets

It is important to reconfirm the existing relationship between previously studied economic variables and early repayment rates and to identify additional variables that increase the explanatory power of the model. The purpose of this study is to investigate the relationship between premature repayment rate and influence variables, and then analyze the dynamic relationship between prepayment rate and influence variables by constructing a Vector Auto Regression (VAR) model. The variables analyzed to affect prepayment rates in this study were construction and positive macroeconomic events, especially inflation. As a result of the analysis of variance analysis, mortgage interst rate was the most influential variable for early repayment rate. This suggests that interest rate policy should be effective in the short-term, and in the mid- to long-term, if the MBS price or market is abnormal, it should be responded to by changing the policy related to the construction industry.

Cost reduction in the case of an early repayment of a consumer credit

Cost reduction in the case of an early repayment of a consumer credit

Features of Determining the Beginning of the Limitation Period

The article defines the features of calculating the limitation period, describes the rules and criteria for determining the beginning of the limitation period. The objective and subjective criterions of beginning of motion of this term are distinguished. On an objective criterion the beginning of term of limitation period begins from the moment of violation of right and interest of person. A subjective criterion marks a moment, when a person knew or could know about violation of the right or person of violator. In this case, the real possibility of such awareness is important, not actual. For legal entities, the subjective criterion is realized through the officials (authorized) of its persons or persons within the organ to which the functions assigned to them are exercised. It is determined that the calculation of the commencement of the limitation period for legal entities does not depend on the change of its authorized persons. The correctness of the calculation of the limitation period from the day after the calendar date in which the offense occurred, which meets the general rules for the calculation of terms and deadlines, is substantiated. It is stated that on the last day of fulfilment of the obligation the person has the right to fulfil it by the end of the day. At the same time, the procedure of applying to the court for technical reasons cannot always be implemented on the day the claim arises, since it requires the preparation of a procedural document — a statement of claim. The features of calculation of term of limitation period are certain for credit obligations and obligations of minor persons. It is concluded that in credit obligations, the limitation period should be calculated from the moment of default, not its parts, that is, the day after the contract expires. However, if the creditor files a claim for full early repayment of the debt, the limitation period should be calculated from the next day after the claim is made. For minors, it is reasonable to calculate the limitation period from the moment of its acquisition or granting them full civil capability.

Early warnings and repayment plans: novel trial management methods for monitoring and managing data return rates in a multi-centre phase III randomised controlled trial with paper Case Report Forms

BackgroundMonitoring and managing data returns in multi-centre randomised controlled trials is an important aspect of trial management. Maintaining consistently high data return rates has various benefits for trials, including enhancing oversight, improving reliability of central monitoring techniques and helping prepare for database lock and trial analyses. Despite this, there is little evidence to support best practice, and current standard methods may not be optimal.MethodsWe report novel methods from the Trial of Imaging and Schedule in Seminoma Testis (TRISST), a UK-based, multi-centre, phase III trial using paper Case Report Forms to collect data over a 6-year follow-up period for 669 patients. Using an automated database report which summarises the data return rate overall and per centre, we developed a Microsoft Excel-based tool to allow observation of per-centre trends in data return rate over time. The tool allowed us to distinguish between forms that can and cannot be completed retrospectively, to inform understanding of issues at individual centres. We reviewed these statistics at regular trials unit team meetings. We notified centres whose data return rate appeared to be falling, even if they had not yet crossed the pre-defined acceptability threshold of an 80% data return rate. We developed a set method for agreeing targets for gradual improvement with centres having persistent data return problems. We formalised a detailed escalation policy to manage centres who failed to meet agreed targets. We conducted a post-hoc, descriptive analysis of the effectiveness of the new processes.ResultsThe new processes were used from April 2015 to September 2016. By May 2016, data return rates were higher than they had been at any time previously, and there were no centres with return rates below 80%, which had never been the case before. In total, 10 centres out of 35 were contacted regarding falling data return rates. Six out of these 10 showed improved rates within 6–8 weeks, and the remainder within 4 months. ConclusionsOur results constitute preliminary effectiveness evidence for novel methods in monitoring and managing data return rates in randomised controlled trials. We encourage other researchers to work on generating better evidence-based methods in this area, whether through more robust evaluation of our methods or of others.

ПРОБЛЕМИ ОЦІНКИ КРЕДИТНИХ РИЗИКІВ СТРУКТУРОВАНИХ ФІНАНСОВИХ ІНСТРУМЕНТІВ

Підходи до оцінки ризиків структурованих фінансових інструментів, а саме цінних паперів, забезпечених активами, у сучасній фінансовій інженерії є недостатньо систематизованими. Причинами цього можуть стати розмаїття ризиків, які банк бажає уникнути, передавши в управління іншим сторонам; неналежна увага до селекції позичальників; відсутність консолідації з питань формування єдиної методики оцінки типових ризиків.
 Автор подає для аналізу три головні види ризиків, з якими стикається банк у процесі здійснення сек’юритизації: ризик дострокового повернення кредиту, ризик зміни процентної ставки та ризик дефолту контрагента. У основі оцінок лежать фактори часу та події, які за певних умов можуть критично впливати на грошові потоки фінансових установ.
 Ризики дострокового повернення пов’язані з розрахунком усереднених значень часу до настання виплат за кредитами, однак уніфікована методика оцінки у банківській практиці наразі відсутня. Оцінка ступеню ризику супроводжується обрахунком процентного приросту до базової ціни з незмінною доходністю. Приріст відображає ризик зміни процентної ставки протягом певного часу.
 Особливу увагу у статті автор приділив аналізу методів оцінки дефолту контрагента структурованого інструменту. Встановлено, що методика Е. Альтмана за різних умов економічного середовища може давати суперечливі результати. Тому в останні роки оптимальними моделями оцінки ризику дефолту можна вважати моделі нечітко-нейронних мереж. Взята за основу методика О.А. Недосєкіна показує ступінь ризику банкрутства позичальника, спираючись на методи експертних оцінок. З одного боку, модель нечітко-нейронних мереж може давати наближені до істини результати, з іншого – на точність результату може впливати асиметрія інформації, на основі якої будує оцінку певний експерт. В такому ключі ця модель потребує подальших вдосконалень, які пропонують сучасні японські вчені на основі критерію Мамдані. 
 Таким чином, проблематика оцінки кредитних ризиків структурованих інструментів залишається актуальною у сучасних наукових колах та потребує вироблення спільних ідей уніфікації методик, які пропонуються сучасною наукою.

Modelling Default Risk of Borrowers: Evidence from Online Peer to Peer Lending Platforms in Australia

Peer to Peer lending has the capacity to transforming the mass banking industry worldwide but credit risk modelling remains the core challenge of the platform. The general objective of this study is to analyse the credit default risk of borrowers of Peer to Peer online lending platform based in Australia. Specific objectives include the following; To identify the loan information applicants provide to request for a loan facility, Using RateSetter.com published data on loans to predict the likelihood of credit risk of the platform. In this article, we employed binary logistic regression model to assess the likelihood of loan default. Based on the mathematical approach and the nature of dependent variable, we grouped variables into categorical, numerical-continuous as well as binary. The dependent variable is dichotomous whilst real-life dataset was retrieved from a popular and competitive online lending platform based in Australia from 2014-2017. We identified that early repayment, no mortgage tenant; car, debt consolidation, investment, major events, professional services, 3-year loan duration, 4-year loan duration, interest rate and income have significant influence on borrowers’ likelihood to default. Our empirical coefficients suggest that, there is 83.4% likelihood of borrowers default rate and hence recommended a critical examination of borrowers’ information presented to the platform. This paper fulfills the need to examine the credit information provided by loan applicants. Similarly, it endeavors to predict the possibility of borrowers default risk and the reasons contributing to online lending credit default risk. Keywords: Credit Risk, Peer To Peer Online Lending, Binary Logistic Regression DOI : 10.7176/RJFA/10-2-01

Competing risk models of default in the presence of early repayments

Competing risk models of default in the presence of early repayments

Dual hydrocarbon–geothermal energy exploitation: potential synergy between the production of natural gas and warm water from the subsurface

Abstract The decline of domestic natural gas production, increasing dependency on gas imports and lagging development of renewable energy production may pose serious challenges to the current high standards of secure energy supply in the Netherlands. This paper examines synergy between hydrocarbon- and geothermal exploitation as a means to reinforce energy security. The Roden gas field is used as an example to demonstrate potential delay of water breakthrough in the gas well and a resulting increase of recovered gas (up to 19%), by positioning of a geothermal doublet in the water leg of the gas field. The reservoir simulations show that the total increase of gas production primarily depends on the amount of aquifer support. An optimal configuration of gas- and geothermal wells is key to maximise gas recovery and strongly depends on the distribution of reservoir properties. The study also reveals that this option can still be beneficial for gas fields in a late stage of production. Net Present Value calculations show that the added value from the geothermal doublet on total gas production could lead to an early repayment of initial investments in the geothermal project, thereby reducing the overall financial risk. If no subsidies are taken into account, the additional profits can also be used to finance the geothermal project up to break-even level within 15 years. However, this comes with a cost as the additional profits from improved gas recovery are significantly reduced.

Cross-acceleration and the relationship between board independence and bond yield spreads

This paper investigates the mediating effect of cross-acceleration provisions in bond debt on board independence and bond yield spreads. Cross-acceleration provisions cause bond debt to accelerate if other debt (mainly bank debt) is accelerated and allows bondholders to benefit from the monitoring of fellow creditors. Board independence, while generally seen as a positive governance feature, has been viewed as detrimental to bondholder interests when bondholder-shareholder conflicts are high. Cross-acceleration works to protect bondholder interests through increased likelihood of bankruptcy court supervision (or early repayment of debt). Consistent with this view, we find that when bondholder-shareholder conflict are high bonds issued without cross-acceleration provisions have yields that increase in board independence whereas bonds issued with cross-acceleration have yields that decrease in board independence. The results suggest that cross-acceleration plays a role in mitigating the tendency of more independent boards to favor shareholders when bondholder-shareholder conflicts arise.

The Conceptual Principles of Relations Between Romania and the European Communities (1980ʼs - early 1990ʼs)

The author investigates the deepening of relations between Romania and the European Communities during the 1980ʼs and early 1990ʼs. It was established that the deepening and development of relations with the EEC influenced Romania ambiguously, however, in general, in the early 1980's, it contributed to its economic upsurge. N. Ceausescu pursued a policy of intensive industrialization of the CPR, in order to transform Romania into a powerful state of the region, which was associated with the improvement of relations with the European Communities.
 Taking into account the insolvency of Romania, it has been shown that, the threat of interference in internal affairs has led to Bucharest's policy of austerity saving since 1982 for early repayment of debts. It is concluded that although Romania freed itself of financial obligations in 1989, but ignoring the needs of the domestic market put Romanian society at the brink of poverty and humanitarian catastrophe, which created the preconditions for the overthrow of the N. Ceausescuʼs regime.
 Keywords: Romania, European Communities, European integration, N. Ceausescu, I. Iliescu

The Time Value of Money Concept in Islamic Finance

The time value of money is a basic investment concept and a basic element in the conventional theory of finance. The Shari`ah does not rule out this consideration, for it does not prohibit any increment in a loan given to cover the price of a commodity in any sale contract to be paid at a future date. What is prohibited, however, is making money’s time value an element of any lending relationship that considers it to have a predetermined value. Here, the Shari`ah requires that a loan be due in the same currency in which it was given. The value (i.e., purchasing power) of paper currencies varies due to changes in many variables over which the two parties of a loan contract usually have no control. This study examines possible modus operandiof time valuation according to the Shari`ah’s precepts vis-a-vis the concept of money, and whether any value can be attributed to time while considering money’s value. For this purpose, it investigates the juristic views on such relevant issues as the permissibility of difference between a commodity’s cash and credit prices and an increase and reduction of the loan’s amount in return for early repayment.

Predicting Prepayment and Default Risks of Unsecured Consumer Loans in Online Lending

ABSTRACTOnline lending provides a means of fast financing for borrowers based on their creditworthiness. However, borrowers may undermine this agreement due to early repayment or default, which are two major concerns for the platform and lenders, since both affect the profitability of a loan. While default risk is frequently focused on credit scoring literature, prepayment has received much less attention, despite a higher prepayment rate being observed in online lending when compared with default. This article uses multivariate logistic regression to predict the probability of both the underlying prepayment and default risks. Real consumer lending data of 140,605 unsecured loans provides evidence that these two events have their own distinct patterns. We consider systemic risk by incorporating macroeconomic factors in modeling and address the influence of economic conditions, which are lessons learnt from the last financial crisis. The out-of-sample validation has shown that both prepayment and default can be accurately predicted. This article highlights the necessity of regulations on prepayment given the fast growing online lending market.

Возврат части страховой премии при досрочном погашении кредита

Возврат части страховой премии при досрочном погашении кредита

The Price and Adverse Effects of Consumer Protection for the Protected. A Panel Study on Consumers' Right to Early Repayment of Mortgage Loans in the EU-Member States

Increasing consumer protection shifts contractual risks from consumers to suppliers. This raises marginal costs and equilibrium prices. Increasing consumer protection is therefore not without cost. In a cross-country study on European mortgage markets we tested the hypothesis that (all other important determinants of mortgage interest rates controlled for) making consumer protection legislation more stringent leads to higher consumer mortgage interest rates if debtors are permitted to repay their loans at any time without paying damages to the bank. Using monthly panel data collected for twenty-three EU Member States in the period from 2006 to 2016 we find that Member States with high consumer protection levels have higher mortgage interest rates than countries with low protection levels. We subsequently question the assumption that a high level of protection is justified. First, consumer protection leads to cross subsidization of high risk consumers by low risk consumers for instance from people who are not on the job market to those who are and who are therefore more likely to sell their properties and repay the loans prematurely. Second, consumer protection allows debtors to repay their loans if interest rates fall, take out a new loan at a lower interest rate and thus make a windfall profit, without making any losses if interest rates remain constant or rise. This benefits only risk-loving debtors and harms risk averse debtors and is not in line with a reasonable concept of consumer protection. We show this in a formal model that helps us to discuss under what conditions a policy on premature repayments can lead to an increase in consumer welfare.

Dynamic Pricing Under Debt: Spiraling Distortions and Efficiency Losses

Firms often finance their inventory through debt and subsequently sell it to generate profits and service the debt. Pricing of products is consequently driven by inventory and debt servicing considerations. We show that limited liability under debt induces sellers to charge higher prices and to discount products at a slower pace. We find that these distortions result in revenue losses that compound over time, leading to some form of performance spiral down. We quantify the extent to which these inefficiencies can be mitigated by practical debt contract terms that emerge as natural remedies from our analysis, and find debt amortization or financial covenants to be the most effective, followed by debt relief and early repayment options. The online appendix is available at https://doi.org/10.1287/mnsc.2017.2862 . This paper was accepted by Serguei Netessine, operations management.

Влияние ликвидности и платежеспособности на использование ковенантов в проспектах эмиссий корпоративных облигаций эмитентов из стран БРИКС

Ковенанты не только обеспечивают преимущества от смягчения агентского конфликта, связанного с долгом, включая проблемы недофинансирования, замещения активов и размытия долговых обязательств, но и создают издержки за счет уменьшения управленческой и финансовой гибкости. Ковенанты могут служить субститутами некоторым параметрам облигаций, таким как опцион на покупку, конвертируемость или срок погашения,которые также могут помочь в смягчении агентского конфликта.В данной статье представлены результаты эмпирического анализа влияния двух факторов финансовой неустойчивости – ликвидности и платежеспособности – на использование ковенантов в проспектах эмиссии 225 публичных облигационных выпусков эмитентов из стран БРИКС. Нами было выявлено значимое влияние платежеспособности, которая показывает достаточность денежного потока компании погашать свои долгосрочные обязательства, на использование различных типов ковенант увеличении платежеспособности эмитенты реже ограничивают себя в возможности выпуска последующего долга, смене управления, а также используют в проспектах условие досрочного погашения при изменении рейтинга облигационного выпуска. Проспекты отзывных облигаций и облигаций с рейтингом ниже BBB – по классификации Standard & Poor’s (высокодоходные или мусорные облигации) – содержат большее количество ковенантов, ограничивающих выплаты дивидендов и выпуск последующего долга.Наши результаты схожи с результатами, полученными ранее другими авторами на рынках США, Китая и Бразилии. Однако в проспектах российских эмитентов реже встречается запрет на обратную аренду, они не так часто ограничивают себя в выпуске последующего долга, смене управления и не используют условие досрочного погашения при понижении кредитного рейтинга эмитента. Это может быть связано с тем, что пассивные ковенанты не имеют юридической силы в соответствии с законодательством Российской Федерации.

Zastosowanie modeli zdarzeń konkurujących do badania ryzyka kredytowego

Credit risk arises from the debtor’s possible failure to meet the terms and conditions of the credit contract. As a result, the bank does not receive a particular payment stipulated by the contractual provisions. Credit risk usually equates with the credit taker’s insolvency. Hu and Cheng (2015) note the shortage of studies devoted to other kinds of credit risks competing with the risk of default and their influence on the evaluation of the probability of default. In the article, a default and an early repayment are considered to be competing risks. Two approaches were used to research the intensity of competing risks: evaluation of cause-specific hazard and sub-distribution hazard respectively. The interpretation principles within the results acquired by the use of either method have been discussed. For either of the approaches, proper regression models have been set up, alongside conducting the sensitivity analysis. The results have been duly compared. The empirical study employed a sample of 5000 sixty-months’ credits granted by one of the Polish financial institutions. Application characteristics of the credit takers have been used in regression models as covariates.

The Legal nature of the Credit Agreement Commissions

This article deals with the legal nature of commissions charged under credit agreements with regard to the approaches of judicial organs. The author reviews the jurisprudence and concludes that commission means different by nature payments made by the borrower under the loan agreement. Controversial approaches of courts are caused by the fact that Russian legislation does not provide for any legal concept of "Commission under loan agreements." The lender and the borrower may agree on any condition regarding commission in the loan agreement under Art. 421 of the RF Civil Code and Art. 29 of the Federal Law "On banks and banking activities, "in connection with which banks charge commissions for providing a separate service, for example, the commission for opening a loan account or granting a loan. Based on the relevant jurisprudence, commission charged by banks from borrowers under loan agreements can be divided into the commissions covering loan interests and commissions charged as payment for additional services (property benefit, useful effect); Individual commissions, such as the commission for reserving and booking funds, for changing loan terms, for early repayment of the loan are treated by some courts as payments for providing the borrower with useful effect or property benefit, and by other courts as expenses. Commissions that are paid periodically and accrued to the balance of indebtedness according to their legal nature amount to the payments covering interests charged for using a loan. In such a situation borrowers have the illusion that credit is provided under a lower interest rate, though a part of the interest payment is hidden in the commission. It is difficult to get the commissions back from the Bank. The paper concludes that the parties to the loan agreement must negotiate the commissions or the procedure of their estimation; otherwise, the recovery of such a commission may become impossible for the Bank, which is confirmed by the jurisprudence.