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Credit Risk and Bank Lending in the Czech Republic

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Author Info

  • Narcisa Kadlcakova
  • Joerg Keplinger

Abstract

This project undertakes an empirical analysis in credit risk modeling using a data sample representative of bank lending to the Czech corporate sector. A rating system is constructed using a proprietary database (Creditreform) that provides a solvency index for a large number of Czech firms. Several methods for the calibration and validation of a rating system are described and tested in practice. On the basis of a representative portfolio for Czech industries, systemic predictions of regulatory and economic capital are obtained and compared. The methodologies formulated by the latest Consultative Document of the NBCA (April 2003) and by the Credit Metrics and CreditRisk+ models are applied. The main contributions of this project can be briefly summarized as follows, (a) it shows in an applied manner that input data problems in credit risk modeling can be overcome, (b) it sheds light on regulatory issues that are gaining increasing relevance, and (c) it outlines the most important features of two credit risk models.

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Bibliographic Info

Paper provided by Czech National Bank, Research Department in its series Working Papers with number 2004/06.

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Date of creation: Jun 2004
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Handle: RePEc:cnb:wpaper:2004/06

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Keywords: Credit Risk; Economic Capital; Exchange Rate Exposure; Rating System.;

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References

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  1. Nickell, Pamela & Perraudin, William & Varotto, Simone, 2000. "Stability of rating transitions," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 203-227, January.
  2. Bangia, Anil & Diebold, Francis X. & Kronimus, Andre & Schagen, Christian & Schuermann, Til, 2002. "Ratings migration and the business cycle, with application to credit portfolio stress testing," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 445-474, March.
  3. Jarrow, Robert A & Lando, David & Turnbull, Stuart M, 1997. "A Markov Model for the Term Structure of Credit Risk Spreads," Review of Financial Studies, Society for Financial Studies, vol. 10(2), pages 481-523.
  4. Yusuf Jafry & Til Schuermann, 2003. "Metrics for Comparing Credit Migration Matrices," Center for Financial Institutions Working Papers 03-09, Wharton School Center for Financial Institutions, University of Pennsylvania.
  5. Lando, David & Skodeberg, Torben M., 2002. "Analyzing rating transitions and rating drift with continuous observations," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 423-444, March.
  6. Crouhy, Michel & Galai, Dan & Mark, Robert, 2000. "A comparative analysis of current credit risk models," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 59-117, January.
  7. Til Schuermann & Yusuf Jafry, 2003. "Measurement and Estimation of Credit Migration Matrices," Center for Financial Institutions Working Papers 03-08, Wharton School Center for Financial Institutions, University of Pennsylvania.
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Citations

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Cited by:
  1. Jiří Jakoubek, 2012. "Limits to the Price Formation: Possibilities and Implications of Setting a Common Interest Rates," Český finanční a účetní časopis, University of Economics, Prague, vol. 2012(4), pages 102-119.
  2. Ivan Baboucek & Martin Jancar, 2005. "Effects of Macroeconomic Shocks to the Quality of the Aggregate Loan Portfolio," Working Papers 2005/01, Czech National Bank, Research Department.

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