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Modeling Bank Loan LGD of Corporate and SME Segments: A Case Study

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Author Info
Radovan Chalupka (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
Juraj Kopecsni () (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)

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Abstract

Loss given default (LGD) is one of key parameters to estimate credit risk in an internal rating based approach considered in The New Basel Capital Accord. The aim of this paper is to find determinants of LGD using a set of firm loan micro-data of an anonymous Czech commercial bank. The authors find that LGD is driven primarily by the period of loan origination, relative value of collateral, loan size and length of business relationship. Different models employed in their analysis provide similar results; in more complex models, log-log models appear to perform better, implying an asymmetric response of the dependent variable.

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File URL: http://journal.fsv.cuni.cz/mag/article/show/id/1165
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Publisher Info
Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 59 (2009)
Issue (Month): 4 (Oktober)
Pages: 360-382
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Handle: RePEc:fau:fauart:v:59:y:2009:i:4:p:360-382

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Related research
Keywords: credit risk; loss given default; fractional responses; ordinal regression; quasi-maximum likelihood estimator;

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Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

Cited by:
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  1. Ibrahim L. Awad, 2008. "Switching to the Inflation Targeting Regime: Does it necessary for the case of Egypt?," Working Papers IES 2008/34, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Dec 2008. [Downloadable!]
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