A Model of Credit Risk in the Corporate Sector Based on Bankruptcy Prediction
We propose a method for assessing the risk of losses on bank lending to the non-financial corporate sector based on bankruptcy probability modelling. We estimate bankruptcy models for different industries and attach a risk weight to each firm's debt in a given year. The risk weight is equal to the probability of bankruptcy. By summing all risk-weighted debt in an industry, we obtain an estimate of the share of debt in bankruptcy accounts in a given year. A key feature of our model is the inclusion of economic indicators at the industry level, observed in real time, as explanatory variables together with standard financial accounting variables and real-time credit rating information. We find that historically, during 2000-2014, there is good correspondence between our estimated measure of risk-weighted debt and actual debt in bankruptcy accounts. Moreover, bank losses according to bank statistics and debt in bankruptcy accounts display a similar pattern over time in most industries.
Year of publication: |
2016
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Authors: | Hjelseth, Ida Nervik ; Raknerud, Arvid |
Publisher: |
Oslo : Norges Bank |
Saved in:
freely available
Series: | Staff Memo ; 20/2016 |
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Type of publication: | Book / Working Paper |
Type of publication (narrower categories): | Research Report |
Language: | English |
ISBN: | 978-82-7553-942-5 |
Other identifiers: | 875711081 [GVK] hdl:10419/210333 [Handle] hdl:11250/2506528 [Handle] |
Source: |
Persistent link: https://www.econbiz.de/10012144122
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