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Volume 70, Issue 2

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Explaining Corporate Credit Default Rates With Sector Level Detail

Gertler, Lubomira; Jancovicova-Bognarova, Kristina; Majer, Lukas

Year: 2020   Volume: 70   Issue: 2   Pages: 96-120

Abstract: We model corporate loan default rates in four main economic sectors using quasi-panel methods and find that economic sectors respond differently to changing economic and financial conditions in terms of time, intensity or dynamics. We propose using techniques that allow both long run and short run components, while maintaining a flexible unified framework to capture heterogeneity across economic sectors (error correction panels). We also undertake a stress testing exercise, which justifies more granular level modelling due to heterogeneity across sectors. We conclude that such unified framework provides more robust results. From practical point of view, evidence from Slovak corporate sector confirms that construction sector is far more vulnerable to shocks than manufacturing, business services or trade.

JEL classification: C15, C23, G21, G33

Keywords: banking, corporate default risk, credit risk, stress tests

RePEc: https://ideas.repec.org/a/fau/fauart/v70y2020i2p96-120.html

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