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The Role of Non-financial Factors in Internal Credit Ratings

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Listed:
  • Grunert, Jens
  • Norden, Lars
  • Weber, Martin

Abstract

Internal credit ratings are expected to gain in importance because of their potential use for determining regulatory capital adequacy and banks’ increasing focus on the risk-return profile in commercial lending. Therefore, the components of internal credit ratings merit not only a qualitative but also a quantitative analysis. Whereas the eligibility of financial factors as inputs for credit ratings is widely accepted, the role of non-financial factors remains ambiguous. Analysing credit file data from four major German banks we find evidence that the combined use of financial and non-financial factors leads to a more accurate prediction of current and future default events than the single use of each of these factors respectively.

Suggested Citation

  • Grunert, Jens & Norden, Lars & Weber, Martin, 2002. "The Role of Non-financial Factors in Internal Credit Ratings," CEPR Discussion Papers 3415, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3415
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    References listed on IDEAS

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    More about this item

    Keywords

    credit ratings; credit risk; debt default; probit analysis;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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