Repayment Risk Research Articles

A study on default prediction of Chinese online lending: based on the analysis of mobile phone usage data

ABSTRACT Information asymmetry between online financial lenders and borrowers may lead to a high risk of overdue repayment. To identify the influencing factors of the default rate in Chinese online lending, the presented study was conducted using a dataset constructed by 5108 borrowers in an online lending platform between July 1 and September 30 in the year of 2019. This research adopted a logistic regression approach to investigate the influencing factors of borrowers’ defaults based on loan application time and borrowers’ mobile phone usage. The results show that the default rate is relatively low when the loan application is made during the daytime. Meanwhile, the study indicates that the default rate is negatively correlated with the most of the investigated parameters, which include the number of loan applications, the number of contacts, the duration of the mobile phone using the internet, and the number of one person’s multiple phone numbers. Based on observations of the presented research, it could be found that mobile phone usage data possesses a significant impact on the default prediction, which is capable of providing constructive guidance to effectively reduce default risk for the borrowers and the online lending platform.

Страхування як спосіб гарантування безпеки банківського кредитування

A very urgent problem for banking institutions is the search for methods to minimize credit risks that would be relatively universal, flexible and could be applied to various credit operations. Current practice of minimizing the negative impact of credit risks mainly comes down to the creation of special reserves and setting limits for certain categories of borrowers, which does not always allow achieving the desired result. The paper considers the possibility of using insurance to ensure the safety of bank lending as an alternative tool to minimize bank credit risks. With this approach, credit risk insurance is considered as a complex of services of an insurance company to protect the property interests of the lender with respect to the existing risk of default or partial repayment of the loan due to the insolvency of the borrower. Credit risk insurance includes loan non-repayment insurance, borrower liability insurance for non-repayment of loan and insurance of collateral. The advantages of using credit risk insurance for a bank are the ability to use this tool for any categories of borrowers, taking into account the peculiarities of the loan agreement, the solvency of the borrower, the conditions for repaying the loan, as well as the relatively small insurance costs. Under the condition of insurance of credit risks, banks no longer need to form additional reserves for certain loan agreements and immobilize part of the financial resources, which helps to ensure the stability of the current work on customer service for both active and passive operations of the bank. Besides, while insuring credit risks, the insurance company acts as an additional guarantor of the stability of the bank, its ability to pay with its creditors in time.

Evaluating the Effectiveness of Data Mining Techniques in Credit Scoring of Bank Customers Using Mathematical Models: A Case Study of Individual Borrowers of Refah Kargaran Bank in Zanjan Province, Iran

Loan deferment is a negative consequence of the activities of financial institutions. Increase in the amount of deferred loans can diminish productivity in the banking sector. The purpose of the present research is to cluster bank customers in order to prevent loan deferment and identify and classify customers with varying levels of loan repayment risk. In the proposed method, k-means, two-step, and Kohonen techniques are used for clustering and determining the behavior of each cluster. The results indicate that the k-means model with five clusters has the highest clustering accuracy. Clustering is also used to determine underlying feauture. loan term, loan value, and collateral value are respectively identified as the most influential feauture . Customers are clustered after removing non-significant feautures. Eight different machine learning techniques are used for clustering. These techniques are ranked in terms of efficiency based on certain evaluation criteria and using data envelopment analysis. The results indicated that support vector machine (SVM) and artificial neural networks (ANN) are the most efficient of the examined techniques

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.

Loan repayment behavior among the clients of Indian microfinance institutions: A household-level investigation

ABSTRACTThis study focuses on repayment risk associated with microfinance institution (MFI) lending in India. While identifying the determinants of loan delinquency, it divulges features that tend to create repayment differences between the low and high income client households. Primary data of 498 households collected from two Indian states are analyzed using descriptive statistics and logistic regression. The study examines the role of household characteristics, loan characteristics, moral hazard features, and the regional attributes in loan delinquency behavior. The findings ascertain that the households having low incomes, high indebtedness and greater loan diversion, and experiencing high costs of borrowing are prone to greater default probabilities. Contrarily, those having higher financial literacy with a feeling of social cohesiveness and joint liability are likely to be less delinquent. Absence of MFI supervision is a critical factor for loan delinquency. However, MFIs’ biases against poverty lending are possibly over-emphasized. With proper supervision and measures to check unproductive loan utilization, the repayment propensity is likely to improve.

Local borrowings as a tool for replenishing local budget income

In this article, the essence of local borrowing was formulated and different notions for “local borrowing” were taken into consideration. It is determined that local borrowing is one of the most important sources of replenishment of local budget revenues, which can be directed to the solution of current and long-term problems, as well as the implementation of socio-economic programs of local governments. The relevance of supplementing the local budgets of Ukraine at the expanse of local borrowing within the framework of financial decentralization was noted. It is substantiated that for the effective development of the system of local loans in Ukraine it is necessary to explore and use foreign experience in the formation of the legal and regulatory base of the functioning of the system of local borrowing. It has been researched that the existing legal framework is imperfect and incomplete, which significantly influences the development of the local borrowing institute. The state of the municipal borrowing market in Ukraine has been analyzed. It is established that the level of efficiency of municipal loans to Ukraine is very low. The tasks were introduced that will help to build the effective system of local borrowing regulation. It is revealed that the local borrowing market in Ukraine is still in its initial stage of development and is not fully developed. In connection with this, the main problems of its development are identified, among them: increasing risk of late repayment and payment of debt obligations, reduction of demand for municipal securities due to deterioration of liquidity of financial intermediaries and lack of transparency of information on activity issuers. It is proposed to improve the functioning of the local borrowing market in Ukraine by introducing an appropriate legal framework for the issuance and placement of local loan securities, widening access of local governments to the internal and external borrowing market, and simplifying the procedures for obtaining permits and registering municipal bond issues.

Post-crisis trends in household credit market behavior: evidence from Hungary (Literature review)

In response to a sharp rise in household credit repayment risk after the 2008 crisis, the banking sector was consolidated, borrowing conditions were tightened and the regulatory authorities had to improve the financial literacy of population. The study evaluates the effectiveness of regulatory measures to prevent excessive indebtedness, and analyzes the results of the latest survey of population financial literacy in Hungary after the 2008 financial crisis. The results confirm the scientific studies of different economists and scholars who state that the financial awareness is closely related to household saving and borrowing patterns. The outcomes of the analysis reveal the risks associated with the lack of financial literacy in Hungary. In fact, the financial awareness of households over the past years has not improved significantly either in the wake of losses suffered on FX-based loans, or as a result of the preventive actions undertaken by the government regulatory bodies.

Antecedents of SMEs’ satisfaction and loyalty towards Islamic microfinance

PurposeThe purpose of this paper is to examine factors influencing the level of satisfaction of Islamic microfinance customers and their loyalty toward their patronized institution in Central Java, Indonesia.Design/methodology/approachThe target population is all customers of Islamic microfinance institutions in Central Java, Indonesia. A sample of 300 respondents is selected for this study using purposive sampling and only 246 data are used in the analysis. The data are then analyzed using structural equation model with cost of loan, risk of loan, loan repayment, family welfare and Shariah issues as exogenous variables and satisfaction and loyalty as endogenous variables tested in the model.FindingsThe findings have shown that there is a significant effect of cost of loan, risk of loan and loan repayment upon the customers’ satisfaction and from the customers’ satisfaction toward the customers’ loyalty. The Shariah issues and family welfare were statistically insignificant to predict the customers’ satisfaction, which imply a big homework of Islamic finance academics and practitioners in Indonesia to educate people about Islamic finance and to show the real positive impact of Islamic finance models toward poverty.Originality/valueCentral Java is the province with a large number of SME and microfinance institutions, both conventional and Islamic, in Indonesia. This study provides a good insight for researchers seeking updated information about microfinance in Indonesia.

Switching from Group Lending to Individual Lending: The Experience at China’s Largest Microfinance Institution

ABSTRACT We analyze group and individual lending using data from 26,579 loan-specific observations in 2014–2016 for CFPA Microfinance, China’s largest microfinance institution (MFI). We show that MFIs in China have converted a large share of their group liability portfolio into individual liability lending, particularly in southern China. Changes in loan contracts, especially loan size and interest rates, significantly increased repayment risk, whereas long borrowing history improved repayment performance. The higher repayment risk of individual lending was likely compensated by higher interest income. Our research indicates that, under certain circumstances, individual lending can be an important form of loans for MFIs.

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.

Application of Fuzzy Model Analysis of Default and Prepayment Behaviours

This paper has debated Fuzzy Model in the context of default and prepayment behaviour, through theoretical and empirical analysis, this paper shows the law of default and repayment and the main factors affecting the risk of default and repayment. On this basis, it chooses appropriate measurement tools to control the risk, and provides some basic information for the default risk of housing mortgage loan. At the same time, it also provides commercial banks with evasion of personal housing mortgage. The default and repayment risks faced by loans provide further quantitative information.

Project finance and investment in the oil and gas industry in developing countries: a case study of Ghana

Raising start-up and working capital are challenges faced by indigenous oil and gas entrepreneurs in many developing countries. The absence of sufficient collateral, good business plans, and high interest rates are barriers to acquiring bank loans in Ghana. The study was to identify possible avenues for funding oil and gas projects and challenges indigenous firms (SMEs) within the oil and gas value chain encounter in accessing funds. A questionnaire survey was performed with some banks and oil and gas service providing companies in Ghana. We showed that SMEs have lower success rate in accessing bank loans compared to well-established firms due to repayment risk. Therefore, financial institutions could resort to the project finance method to reduce such risk for projects within the oil and gas industry. We conclude that project finance is a viable avenue for SMEs to finance oil and gas projects in developing countries despite the associated bottlenecks.

Project finance and investment in the oil and gas industry in developing countries: a case study of Ghana

Raising start-up and working capital are challenges faced by indigenous oil and gas entrepreneurs in many developing countries. The absence of sufficient collateral, good business plans, and high interest rates are barriers to acquiring bank loans in Ghana. The study was to identify possible avenues for funding oil and gas projects and challenges indigenous firms (SMEs) within the oil and gas value chain encounter in accessing funds. A questionnaire survey was performed with some banks and oil and gas service providing companies in Ghana. We showed that SMEs have lower success rate in accessing bank loans compared to well-established firms due to repayment risk. Therefore, financial institutions could resort to the project finance method to reduce such risk for projects within the oil and gas industry. We conclude that project finance is a viable avenue for SMEs to finance oil and gas projects in developing countries despite the associated bottlenecks.

МОДЕЛЮВАННЯ ОПТИМАЛЬНОГО РОЗПОДІЛУ КОШТІВ ДЛЯ ЗМЕНШЕННЯ ІНВЕСТИЦІЙНИХ РИЗИКІВ В УМОВАХ ТРАНСФОРМАЦІЙНОЇ ЕКОНОМІКИ

In modern conditions of economic activity of economic entities involve risks. Success largely depends on the ability of the management and mitigation of risks. In modern times this problem is one of the most important in the economy – it is of great interest among various scholars and researchers and certainly deserves a comprehensive study. The risk is the possibilities that are associated with overcoming uncertainty in a situation of choice, in implementation of which it is possible to calculate the implied probability of achieving a certain result, as well as possible losses and deviations from the goal. Investment risk describes the probability of unforeseen financial loss, its level in the assessment is defined as the deviation of the expected income from the investment of the average or calculated values. Therefore, the assessment of investment risk is always associated with the assessment of expected revenues and their losses. However, risk assessment is a subjective process. Whatever existed mathematical models for calculating the risk curve and its exact magnitude, in each case, the investor needs to determine the risk of investment in the company. This article describes the principles of formation of investment risks, their main groups and identified the key groups of risks affecting the project: financial, credit, market and liquidity risk. Reporting of the selected companies, which requires investment, were numerically identified groups of risks using a variety of approaches and methodologies. For optimal allocation, given existing risk was elected probity model to determine the potential default of the investment project, including the distribution of probabilities of occurrence of each type of risk in the project as a whole. To address these risks, we solved the optimization problem, which includes the ability to control funds raised were directed to the repayment risk of the share of each type so that the total probability of bankruptcy of the investment project was minimal.

Do Live Discharge Rates Increase as Hospices Approach Their Medicare Aggregate Payment Caps?

ContextThe rate of live discharge from hospice and the proportion of hospices exceeding their aggregate caps have both increased for the last 15 years, becoming a source of federal scrutiny. The cap restricts aggregate payments hospices receive from Medicare during a 12-month period. The risk of repayment and the manner in which the cap is calculated may incentivize hospices coming close to their cap ceilings to discharge existing patients before the end of the cap year. ObjectiveThe objective of this work was to explore annual cap-risk trends and live discharge patterns. We hypothesized that as a hospice comes closer to exceeding its cap, a patient's likelihood of being discharged alive increases. MethodsWe analyzed monthly hospice outcomes using 2012–2013 Medicare claims. ResultsAdjusted analyses showed a positive and statistically significant relationship between cap risk and live discharges. ConclusionPolicymakers ought to consider the unintended consequences the aggregate cap may be having on patient outcomes of care.

Can flexible agricultural microfinance loans limit the repayment risk of low diversified farmers?

Using a unique data set from a commercial microfinance institution in Madagascar, this article investigates the credit risk of microfinance loans with flexible repayment schedules for crop farmers. Flexible repayment schedules allow a redistribution of principal payments during periods with low agricultural returns to periods when agricultural returns are high through predefined grace periods. We apply propensity score matching to investigate how different numbers of grace periods reflecting different levels of production diversification affect the credit risk of crop farmers. In this attempt, three delinquency categories reflecting various levels of credit risk are assessed. Moreover, we consider the specifics of the regions where loans were disbursed. Our results reveal that loans with predefined grace periods show significantly higher delinquencies. This effect is significant over all three delinquency categories for loans disbursed to low diversified crop farmers. For the more diversified farmers, this effect is only significant for the lowest delinquency category. Hence, predefined grace periods might bridge periods with low agricultural returns but come at the cost of higher credit risk for the lender. The magnitude of these effects is, however, small.

Wpływ trwałości projektów finansowych ze środków unijnych na korekty finansowe

The effective absorption of European funds, contributes to the development of the economy of a member state. This ability depends on the conditions of both the recipient and the institution transferring funds. The beneficiary effectiveness depends on its level of development, which determines the hierarchy of its needs and skills of own resources’ accumulation, necessary co-financing. The institution transferring funds are decisive quality of the institutional system and the transparency regulations for EU assistance. The financial correction is a sanction for any irregularities made by the beneficiaries in the implementation of projects co-financed by European Union funds. The aim of the analysis is to determine the factors affecting the risk of repayment of the EU grant by the beneficiary during the permanence period, and to indicate the level of significance of occurred deficiencies that affect the amount of financial correction. The essential thesis is a statement that there are many irregularities in the shelf life associated mainly with insufficient knowledge and experience of the beneficiaries.

Evaluation of Repayment Risk in Modern Economic Conditions by Ukrainian Banks

Проаналізовано кредитну діяльність банків України упродовж кризових 2013-2016 рр., наголошено на незадовільній якості їхніх кредитних портфелів та необхідності формування у повному обсязі резервів за кредитними операціями. Проблемні кредити призводять до зменшення прибуткової діяльності банків, втрати ліквідності, і, зрештою, капіталу. Розкрито нові підходи до визначення банками розміру кредитного ризику, ґрунтуючись на новому Положенні Національного банку України.

Realistic Evaluation of the Ratio: Loan-To-value – The Key to Minimising the Credit Risk

Abstract As a rule, long-term bank loans entail solid security - a mortgage, regardless of their purpose. The mortgaged property has its specific market value during the loan approval period but during the repayment period, the value of the real estate varies. This is the reason why the initially specified indicator of the coverage of loans with the value of the mortgage - the LTV ratio changes, which in turn increases the risk of loan repayment. The aim of this paper is to draw attention to the necessity of establishing adequate initial LTV ratios (together with other important ratios). This would help nullify the risk of any variations in real estate prices, the loan currency risk, the interest rate risk, as well as the risk of an increase in bank's claims because of a long foreclosure process. The paper analyses effects of changes in LTV ratios caused by varying circumstances using the case study method. The comparative method analyses the changing trends of data on the LTV ratios for the already approved loans over a seven-year period by comparing the flow of the loan capital sum with the real value of the mortgage for three types of loans. The conclusion reached is that commercial banks should establish the initial LTV ratio for various long-term loan products and thus prevent its rise. Banks should do this by taking into account all the factors that cause the ratio’s increase, and thus give preference to the reduction of the credit risk and not the attractiveness and accessibility of loan products.

Owners’ Demographics and Ownership Information in Explaining Credit Repayment Behavior of Micro Small and Medium Sized Enterprises

Small Medium Enterprises (SMEs) in developing countries are subject to higher degree of information opacity causing substantive constrains on lenders in their pursuit of predicting credit risk associated with SME lending. Driven by this context, the lending for SMEs is often characterized as relationship lending and credit risk predictions therefore necessarily resort to qualitative information which is often deemed to be the cost effective, viable and technically sound alternative. Therefore, this research sought to investigate the influence of owners’ demographic and ownership information of Micro and Small Medium sized Enterprises (MSMEs)in explaining their credit default risk using primary data collected from randomly selected 62 MSME borrowers from Trincomalee District of Sri Lanka. Owners’ demographics studied by gender, civil status, size of family, age and age group, ethnicity, education and mobility (the distance between lender and enterprise) of the owners’ of MSMEs under study. Ownership information was proxied by the information whether the business is of sole proprietorship or partnership or of any other type. This study contributes to the literature a novel concept of Loan Repayment Risk Matrix (LRRM) as a comprehensive framework to approach credit repayment risk/credit default risk. Chi-Square Test has been employed to examine the relationship between dependent and independent variables and where the independent variables take continuous values (in the case of mobility), the difference of mean is tested with one-way analysis of variance (ANOVA) with post hoc comparison using Turkey’s honestly significant difference (HSD) test. It has been found that owners’gender, age, education, language and mobility and ownership information are significantly correlating with loan default risk of MSMEs and statistically significant relationship could not be found with respect to civil status, ethnicity and family size. Journal of Management 2013 9(1): 1-15