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Bank Credit Risk Management and Rating Migration Analysis on the Business Cycle

Author

Listed:
  • Dimitris Gavalas

    (Shipping, Trade & Transport Department, Business School, University of Aegean, Chios 82100, Greece)

  • Theodore Syriopoulos

    (Shipping, Trade & Transport Department, Business School, University of Aegean, Chios 82100, Greece
    Audencia Nantes School of Management, Nantes Cedex 3 44312, France)

Abstract

Credit risk measurement remains a critical field of top priority in banking finance, directly implicated in the recent global financial crisis. This paper examines the dynamic linkages between credit risk migration due to rating shifts and prevailing macroeconomic conditions, reflected in alternative business cycle states. An innovative empirical methodology applies to bank internal rating data, under different economic scenarios and investigates the implications of credit risk quality shifts for risk rating transition matrices. The empirical findings are useful and critical for banks to align to Basel guidelines in relation to core capital requirements and risk-weighted assets in the underlying loan portfolio.

Suggested Citation

  • Dimitris Gavalas & Theodore Syriopoulos, 2014. "Bank Credit Risk Management and Rating Migration Analysis on the Business Cycle," IJFS, MDPI, vol. 2(1), pages 1-22, March.
    • Handle: RePEc:gam:jijfss:v:2:y:2014:i:1:p:122-143:d:33616
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    References listed on IDEAS

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    Cited by:

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    3. Constantin ANGHELACHE & Mădălina Gabriela ANGHEL & Dana Luiza GRIGORESCU, 2019. "Currency risk management model," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(620), A), pages 21-34, Autumn.
    4. GABAN Lucian & RUS Ionut - Marius & FETITA Alin, 2017. "An Econometric Approach Of The Banking Risks - Case Of Central And Est European Countries," Revista Economica, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 69(2), pages 73-86, August.
    5. Pejman Peykani & Mostafa Sargolzaei & Mohammad Hashem Botshekan & Camelia Oprean-Stan & Amir Takaloo, 2023. "Optimization of Asset and Liability Management of Banks with Minimum Possible Changes," Mathematics, MDPI, vol. 11(12), pages 1-24, June.
    6. Lapshin, Viktor & Anton, Markov, 2022. "MCMC-based credit rating aggregation algorithm to tackle data insufficiency," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 68, pages 50-72.
    7. Jeffrey R. Stokes, 2023. "A nonlinear inversion procedure for modeling the effects of economic factors on credit risk migration," Review of Quantitative Finance and Accounting, Springer, vol. 61(3), pages 855-878, October.
    8. Tomáš Vaněk & David Hampel, 2017. "The Probability of Default Under IFRS 9: Multi-period Estimation and Macroeconomic Forecast," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 65(2), pages 759-776.
    9. Constantin Anghelache & Gyorgy Bodo, 2018. "General Methods of Management the Credit Risk," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 8(1), pages 143-152, January.
    10. Guglielmo D’Amico & Philippe Regnault & Stefania Scocchera & Loriano Storchi, 2018. "A Continuous-Time Inequality Measure Applied to Financial Risk: The Case of the European Union," IJFS, MDPI, vol. 6(3), pages 1-16, June.

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