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The Colombian banking sector - a contingent claims analysis

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  • Marcos Souto
  • Lisandro Abrego

Abstract

"Este documento utiliza el análisis de créditos contingentes para evaluar el riesgo de crédito del sector bancario de Colombia. Las estimaciones de frecuencias de suspensión de pago esperadas (FQE) realizadas por Moody's-KMV miden la probabilidad de riesgo de quiebra para una muestra de cinco bancos. Este indicador tiene varias ventajas en comparación con los tradicionales obtenidos de los balances de los bancos, en particular mediante la incorporación de expectativas de los participantes en el mercado, una visión colectiva de los riesgos de los bancos y los efectos de la volatilidad de los mercados en los pagos de los bancos. El documento evalúa los principales efectos de las variables macroeconómicas y financieras sobre las FQE para los bancos colombianos en las que están estimadas por Moody's-KMV. Se estiman regresiones por etapas para cada banco y a nivel agregado así como una regresión de datos panel para los datos individuales (a nivel de banco). Los resultados de las regresiones por etapas difieren entre bancos debido a la presencia de heterogeneidad entre los mismos, aunque todos presentan vulnerabilidad a los cambios en las variables de la actividad económica y financieras. Las pruebas de causalidad de Cranger indican que las FQE son un indicador que antecede el comportamiento de la calidad de la cartera." Abstract: "This paper uses contingent claims analysis to assess the credit risk of the Colombian banking sector. Moody's-KMV estimates of expected default frequencies (EDFs) based on market data are used to measure likelihood of default for a sample of five banks. This indicator has several advantages over traditional balance sheet measures of bank vulnerabilities, notably by incorporating market participants' forward-looking, collective view of bank’s risk, as well as the effects of market volatility on the bank's risk of default. The paper assesses the effects of key macroeconomic and financial variables on EDFs for Colombian banks for which Moody's-KMV EDFs are available. Step-wise regressions for both individual banks and the aggregate system are estimated, as well as panel regression for the pooled data for individual banks. Consistent with the heterogeneity of banks included in the sample, step-wise regression results differ significantly across banks, although they generally show the vulnerability of banks to changes in key economic activity variables and financial market conditions. Granger causality tests show that EDFs are a leading indicator of non-performing loans."

Suggested Citation

  • Marcos Souto & Lisandro Abrego, 2008. "The Colombian banking sector - a contingent claims analysis," Coyuntura Económica, Fedesarrollo, December.
  • Handle: RePEc:col:000438:013334
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    File URL: http://hdl.handle.net/11445/2081
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    References listed on IDEAS

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    1. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
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    Cited by:

    1. International Monetary Fund, 2009. "Mexico: Selected Issues," IMF Staff Country Reports 2009/054, International Monetary Fund.
    2. Wilmar Cabrera-Rodríguez & Santiago Segovia-Baquero & Juan Sebastián Mariño-Montaña & Eduardo Yanquen, 2019. "Probabilidad de incumplimiento de entidades financieras colombianas: una aproximación estructural," Borradores de Economia 1097, Banco de la Republica de Colombia.
    3. Mr. Marcos R Souto & Mr. Rodolphe Blavy, 2009. "Estimating Default Frequencies and Macrofinancial Linkages in the Mexican Banking Sector," IMF Working Papers 2009/109, International Monetary Fund.
    4. Mariana Laverde & Esteban Gómez & Miguel Ángel Morales Mosquera, 2011. "Measuring Systemic Risk in the Colombian Financial System: Systemic Contingent Claims Approach," Temas de Estabilidad Financiera 060, Banco de la Republica de Colombia.

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    More about this item

    Keywords

    Coyuntura Económica; Análisis de Créditos Bancarios; Economía Colombiana; Sistemas Bancarios; Riesgo del Crédito; Crédito; Informes de Investigación;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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