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Using Nonperforming Loan Ratios to Compute Loan Default Rates With Evidence From European Banking Sectors

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  • Dobromił Serwa

    (Warsaw School of Economics, Institute of Econometrics)

Abstract

This research is the first attempt to calibrate default rates of loan portfolios using raw data on nonperforming loans and some additional information on the maturity structure of the loan portfolios. We applied a simple model of loan quality, controlling for loan maturities and dynamics of loan supply. Results for nine national aggregate indices of nonperforming housing loans in the Czech Republic, Greece, Ireland, Hungary, Latvia, Poland, Portugal, Romania, and Spain revealed strong differences in the dynamics of calibrated default probabilities between countries. Calibrated default rates were correlated with macroeconomic factors, but the linkages depended on the markets investigated.

Suggested Citation

  • Dobromił Serwa, 2016. "Using Nonperforming Loan Ratios to Compute Loan Default Rates With Evidence From European Banking Sectors," Econometric Research in Finance, SGH Warsaw School of Economics, Collegium of Economic Analysis, vol. 1(1), pages 47-65, June.
    • Handle: RePEc:sgh:erfinj:v:1:y:2016:i:1:p:47-65
    DOI: 10.33119/ERFIN.2016.1.1.3
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    More about this item

    Keywords

    NPL ratio; default rate; credit growth; housing loans; European banking sectors;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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