Linking Financial and Macroeconomic Factors to Credit Risk Indicators of Brazilian Banks
AbstractThis study constructs a set of credit risk indicators for 39 Brazilian banks, using the Merton framework and balance sheet information on the banks’ total assets and liabilities. Despite the simplifying assumptions, the methodology captures well several stylized facts in the recent history of Brazil. In particular, it identifies deterioration in the credit risk indicators of the banking sector, following the crisis in the early 2000s. The risk indicators were regressed against a number of macro-financial variables at both individual and systemic level, showing that an increase in the system EDF, interest rates, and CDS spreads will lead to a deterioration of the individual expected default probability.
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Bibliographic InfoPaper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 189.
Date of creation: Jul 2009
Date of revision:
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Web page: http://www.bcb.gov.br/?english
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-05 (All new papers)
- NEP-BAN-2009-09-05 (Banking)
- NEP-CFN-2009-09-05 (Corporate Finance)
- NEP-FMK-2009-09-05 (Financial Markets)
- NEP-LAM-2009-09-05 (Central & South America)
- NEP-MAC-2009-09-05 (Macroeconomics)
- NEP-RMG-2009-09-05 (Risk Management)
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