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Credit risk model for the Estonian banking sector

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  • Rasmus Kattai

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    Abstract

    This paper gives an overview of the credit risk model that has been developed for the Estonian banking system. The non-performing loans and loan loss provisions of the four largest banks and the rest of the banking sector have been modelled conditional on the underlying economic conditions: economic growth, unemployment, interest rates, in- flation, indebtedness and credit growth. The model highlights the importance of economic growth as the most influential factor behind the soundness of the banking sector in the latest downturn. The expected fall in output volatility will probably decrease the relative importance of output growth and increase the role of interest rates in the future.

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    File URL: http://www.eestipank.info/pub/en/dokumendid/publikatsioonid/seeriad/uuringud/_2010/_1_2010/_wp_110.pdf
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    Bibliographic Info

    Paper provided by Bank of Estonia in its series Bank of Estonia Working Papers with number wp2010-01.

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    Date of creation: 04 Feb 2010
    Date of revision: 04 Feb 2010
    Handle: RePEc:eea:boewps:wp2010-01

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    Postal: Estonia bld. 13, 15095 Tallinn, ESTONIA
    Phone: +3726680719
    Fax: +3726680900
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    Web page: http://www.bankofestonia.info
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    Postal: Estonia bld. 13, 15095 Tallinn, ESTONIA
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    Related research

    Keywords: credit risk; stress testing; financial soundness indicators; Estonian banking sector;

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    References

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    1. Juri Marcucci & Mario Quagliariello, . "Is Bank Portfolio Riskiness Procyclical? Evidence from Italy using a Vector Autoregression," Discussion Papers 05/09, Department of Economics, University of York.
    2. Bank for International Settlements, 2001. "A survey of stress tests and current practice at major financial institutions," CGFS Papers, Bank for International Settlements, number 18, January.
    3. Mark Swinburne & Stéphanie Marie Stolz & Marina Moretti, 2008. "Stress Testing At the IMF," IMF Working Papers 08/206, International Monetary Fund.
    4. Dimitrios P Tsomocos & Gunnar Bardsen, 2006. "Evaluation of macroeconomic models for financial stability analysis," Economics Series Working Papers 2006-FE-01, University of Oxford, Department of Economics.
    5. Jan Willem van den End & Marco Hoeberichts & Mostafa Tabbae, 2006. "Modelling Scenario Analysis and Macro Stress-testing," DNB Working Papers 119, Netherlands Central Bank, Research Department.
    6. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," NBER Working Papers 14656, National Bureau of Economic Research, Inc.
    7. Reinhart, Carmen M. & Rogoff, Kenneth S., 2009. "The Aftermath of Financial Crises," Scholarly Articles 11129155, Harvard University Department of Economics.
    8. repec:onb:oenbwp:y:2002:i:3:b:3 is not listed on IDEAS
    9. Harvir Kalirai & Martin Scheicher, 2002. "Macroeconomic Stress Testing: Preliminary Evidence for Austria," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 3.
    10. Martin Cihák, 2007. "Introduction to Applied Stress Testing," IMF Working Papers 07/59, International Monetary Fund.
    11. David Haugh & Patrice Ollivaud & David Turner, 2009. "The Macroeconomic Consequences of Banking Crises in OECD Countries," OECD Economics Department Working Papers 683, OECD Publishing.
    12. Paul Louis Ceriel Hilbers & Alfredo Mario Leone & Mahinder Singh Gill & Owen Evens, 2000. "Macroprudential Indicators of Financial System Soundness," IMF Occasional Papers 192, International Monetary Fund.
    13. Prasanna Gai & Sujit Kapadia & Stephen Millard & Ander Perez, 2008. "Financial Innovation, Macroeconomic Stability and Systemic Crises," Economic Journal, Royal Economic Society, vol. 118(527), pages 401-426, 03.
    14. Sorge, Marco & Virolainen, Kimmo, 2006. "A comparative analysis of macro stress-testing methodologies with application to Finland," Journal of Financial Stability, Elsevier, vol. 2(2), pages 113-151, June.
    15. Edward J. Frydl, 1999. "The Length and Cost of Banking Crises," IMF Working Papers 99/30, International Monetary Fund.
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    Cited by:
    1. Castro, Vítor, 2013. "Macroeconomic determinants of the credit risk in the banking system: The case of the GIPSI," Economic Modelling, Elsevier, vol. 31(C), pages 672-683.
    2. Grigori Fainstein & Igor Novikov, 2011. "The Comparative Analysis of Credit Risk Determinants In the Banking Sector of the Baltic States," Review of Economics & Finance, Better Advances Press, Canada, vol. 1, pages 20-45, June.

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