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Linking Macroeconomic Dynamics to Georgian Credit Portfolio Risk

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  • Zedginidze Zviad

Abstract

The following study develops a dynamic credit risk model for the Georgian banking portfolio and investigates the effects that macroeconomic (systemic) factors have on credit risk. A SUR model is estimated for the Non-Performing Loan ratio in seven sectors as a function of a lagged dependent variable, macroeconomic factors, and lagged contagion effects. Based on the estimation results, I discuss the impact of macroeconomic factors (such as GDP growth and exchange rate depreciation) on sector-specific credit risk. Given the estimated model, I further conduct stochastic simulations to analyze the expected losses under two hypothetical scenarios: a shock to real GDP gap and a shock to FX rate depreciation. Based on the assumptions on loss-given default and exposure at default, I find a significant impact of systemic shocks on the aggregate credit risk, but this impact varies across different sectors.

Suggested Citation

  • Zedginidze Zviad, 2012. "Linking Macroeconomic Dynamics to Georgian Credit Portfolio Risk," EERC Working Paper Series 12/07e, EERC Research Network, Russia and CIS.
    • Handle: RePEc:eer:wpalle:12/07e
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    References listed on IDEAS

    as
    1. Pesaran, M. Hashem & Schuermann, Til & Treutler, Bjorn-Jakob & Weiner, Scott M., 2006. "Macroeconomic Dynamics and Credit Risk: A Global Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1211-1261, August.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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