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Sustainable profitability in volatile cyclical markets

Author

Listed:
  • Sarraf, Hanna

    (Group Chief Risk Officer, BankMed Group, Lebanon)

Abstract

Market conditions are prone to change rapidly, limiting the ability of lenders to mitigate losses. Furthermore, lenders’ behaviour can often contribute to market volatility as lending initially drives up market leverage, and this is followed by greatly reduced credit supply following a market correction as capital constraints and heightened risk sensitivities constrict banks’ willingness to lend. This paper analyses how banks can successfully ensure it is being rewarded for the risk presented by a cyclical and volatile market. It also discusses how a bank can avoid presenting its shareholders with loss of their capital without missing profitable lending opportunities? In short, how should a bank seek commercial sustainability in volatile cyclical markets?

Suggested Citation

  • Sarraf, Hanna, 2020. "Sustainable profitability in volatile cyclical markets," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 13(2), pages 182-189, March.
    • Handle: RePEc:aza:rmfi00:y:2020:v:13:i:2:p:182-189
    as

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    More about this item

    Keywords

    procyclicality; loan-to-value (LTV); housing market; real estate lending; credit losses; credit cycles; risk measurement; loss forecasting; IRB models; risk segmentation; machine learning; sustainable profitability; concentration risk; active credit portfolio management;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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