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Overview Of The Relevant Indicators Of Defaulted And Non-Defaulted Companies And Possibilities Of Improvement For The Rating Systems Used By The Romanian Commercial Banks

Author

Listed:
  • Kovacs Ildiko

    () (Universitatea Babeș-Bolyai, Facultatea de Științe Economice și Gestiunea Afacerilor)

  • Doczi Henrietta

    (Universitatea Babeș-Bolyai, Facultatea de Științe Economice și Gestiunea Afacerilor)

  • Erdely Attila

    (Universitatea Babeș-Bolyai, Facultatea de Științe Economice și Gestiunea Afacerilor)

  • Felfalusi Éva, Knoch Renáta-Kinga, Patka Kinga-Enikő

    (, Facultatea de Științe Economice și Gestiunea Afacerilor)

Abstract

Since the beginning of the financial and economic crises many news came to light which discussed the increasing number of non-performing loans, and the fact that as a result of the company break-downs, the bank portfolios have also gone worse and worse. In this paper our goal is to find out which internal factors influence the solvency of a company, therefore, to point out the weaknesses of the current Romanian rating systems, which as we will see, do not take into only relevant criteria when according a loan to a company. In order to conduct this study, we choose 18 indicators from several categories to predict bankruptcy. Some of the indicators mentioned above are really common in the international and the Romanian literature (e.g. ROA, ROE, ROS, assets turnover ratio), some of them are less. On a sample of 3000 Romanian companies we use the T-test statistical method to find out if an indicator is significant or not. The sample consists of companies (defaulted and non-defaulted as well) which have presented their financial statements (balance, profit and loss account between 1999 and 2008). For each company a set of 18 financial indicators was calculated, but the results obtained show that only 8 of them is significant in predicting bankruptcy: ROA, assets turnover ratio, equity/total assets, general leverage, current assets to total assets, cash to total assets, total assets and sales. In the next step, by analyzing the obligatory forms used in credit lending, we conclude which indicators are used by different Romanian commercial banks. We found that only four out of seven banks calculate all of the significant indicators identified in the first part of the paper. Finally, we made a proposal about which quantitative indicators should the banks use to minimize the credit losses and to avoid the overdue payments. In addition, we consider that the banks should pay attention to the qualitative factors as well to effectively filter out non-performing loans.

Suggested Citation

  • Kovacs Ildiko & Doczi Henrietta & Erdely Attila & Felfalusi Éva, Knoch Renáta-Kinga, Patka Kinga-Enikő, 2011. "Overview Of The Relevant Indicators Of Defaulted And Non-Defaulted Companies And Possibilities Of Improvement For The Rating Systems Used By The Romanian Commercial Banks," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 413-418, December.
  • Handle: RePEc:ora:journl:v:1:y:2011:i:2:p:413-418
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    File URL: http://anale.steconomiceuoradea.ro/volume/2011/n2/057.pdf
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    References listed on IDEAS

    as
    1. Moessner, Richhild & Allen, William A., 2011. "Banking crises and the international monetary system in the Great Depression and now," Financial History Review, Cambridge University Press, vol. 18(01), pages 1-20, April.
    2. Stolz, Stéphanie Marie & Wedow, Michael, 2010. "Extraordinary measures in extraordinary times – Public measures in support of the financial sector in the EU and the United States," Occasional Paper Series 117, European Central Bank.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    corporate failure; default; risk; financial ratios; rating systems; Romania;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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