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Credit risk measurement: Evidence of concentration risk in Polish banks’ credit exposures

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  • Natalia Nehrebecka

    (Warsaw University – Faculty of Economic Sciences, D³uga 44/50, 00-241 Warsaw, Poland)

Abstract

In recent years, there has been a lot of scientific research stressing the importance of understanding and measuring concentration risk in credit portfolios. The article presents credit risk measurement within the capital requirements regulation of the corporate sector. Main objective is to assess the financial stability of the banking sector from a credit risk perspective. The empirical analysis was based on the individual data from different sources (covering the period 2007 -2018), which are as follows: prudential reporting, business register, financial and behavioural data and balance of payments. This paper analyses the exposure of Polish banks to credit risk arising from different economic sectors. The evaluation includes the firm-level probabilities of default, loss given default, expected losses and unexpected losses. The measures of expected and unexpected losses were estimated by using a structural multi-risk factor approach. While conducting the research, it has been noticed that a credit risk differs across various industries as well as at different phases of economic cycle. Furthermore, the research results indicate that both from the standpoint of individual banks and prudential authorities the correlation risk is being underestimated.

Suggested Citation

  • Natalia Nehrebecka, 2019. "Credit risk measurement: Evidence of concentration risk in Polish banks’ credit exposures," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 37(2), pages 681-712.
    • Handle: RePEc:rfe:zbefri:v:37:y:2019:i:2:p:681-712
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    References listed on IDEAS

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    8. Susanne Emmer & Dirk Tasche, 2003. "Calculating credit risk capital charges with the one-factor model," Papers cond-mat/0302402, arXiv.org, revised Jan 2005.
    9. Natalia Nehrebecka, 2019. "Bank loans recovery rate in commercial banks: A case study of non-financial corporations," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 37(1), pages 139-172.
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    Cited by:

    1. Natalia Nehrebecka, 2021. "Internal Credit Risk Models and Digital Transformation: What to Prepare for? An Application to Poland," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 3), pages 719-736.
    2. Natalia Nehrebecka, 2021. "Climate Risk with Particular Emphasis on the Relationship with Credit-Risk Assessment: What We Learn from Poland," Energies, MDPI, vol. 14(23), pages 1-14, December.

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    More about this item

    Keywords

    corporate sector; concentration risk; capital requirements regulation;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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