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Volume 59, Issue 4

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Modeling Bank Loan LGD of Corporate and SME Segments: A Case Study

Chalupka, Radovan; Kopecsni, Juraj

Year: 2009   Volume: 59   Issue: 4   Pages: 360-382

Abstract: Loss given default (LGD) is one of key parameters to estimate credit risk in an internal rating based approach considered in The New Basel Capital Accord. The aim of this paper is to find determinants of LGD using a set of firm loan micro-data of an anonymous Czech commercial bank. We find that LGD is driven primarily by the period of loan origination, relative value of collateral, loan size and length of business relationship. Different models employed in our analysis provide similar results; in more complex models, log-log models appear to perform better, implying an asymmetric response of the dependent variable.

JEL classification: G21, G28

Keywords: credit risk, loss given default, fractional responses, ordinal regression, quasi-maximum likelihood estimator

RePEc: http://ideas.repec.org/a/fau/fauart/v59y2009i4p360-382.html

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