Loss Given Default: um estudo sobre perdas em operações prefixadas no mercado brasileiro
Using data drawn from the Brazilian Central Bank Credit Information System (SCR), this paper investigates the loss incurred by financial institutions given clients defaults - Loss Given Default (LGD) - in Brazilian credit market from January 2003 to September 2007. According to Basel II, it is necessary to calculate LGD to evaluate credit risk in IRB Advanced approach. Selecting a sample of 9.557 non-retail credit operations, we calculate their LGD based on the opportunity cost incurred during the default period and on the principal loss. Other recovery costs were not taken into account. According to the results, the empirical probability distribution of LGD is bimodal, ranging on average between 47% and 92%. Using a Tobit model, we verified that variables related to economic activity level, collateral, exposure size and renegotiation influenced LGD behavior. Results were similar to Dermine and Carvalho (2006), Asarnow and Edwards (1995), Schuermann (2004) and Hurt and Felsovalyi (1998).