Unexpected loss, expected profit, and economic capital: A note on economic capital for credit risk incorporating interest income, expenses, losses, and ROE target

2020 ◽  
pp. 101481
Author(s):  
Martin Krebs ◽  
Peter Nippel
Keyword(s):  
Credit Risk ◽  
Economic Capital ◽  
Expected Profit ◽  
Interest Income

Does adding up of economic capital for market- and credit risk amount to conservative risk assessment?

2010 ◽  
Vol 34 (4) ◽  
pp. 703-712 ◽  
Author(s):  
Thomas Breuer ◽  
Martin Jandačka ◽  
Klaus Rheinberger ◽  
Martin Summer
Keyword(s):  
Risk Assessment ◽  
Credit Risk ◽  
Economic Capital

scholarly journals THE EFFECTS OF MACROECONOMIC CONDITIONS ON LOAN PORTFOLIO CREDIT RISK AND BANKING SYSTEM INTEREST INCOME

Ekonomika ◽  
2012 ◽  
Vol 91 (3) ◽  
pp. 85-100 ◽  
Author(s):  
Ričardas Mileris
Keyword(s):  
Credit Risk ◽  
Banking System ◽  
Classification And Regression Tree ◽  
Economic Environment ◽  
Statistical Dependence ◽  
Tree Model ◽  
Loan Portfolio ◽  
Portfolio Credit Risk ◽  
Macroeconomic Conditions ◽  
Interest Income

This article presents on analysis of macroeconomic conditions in the EU countries in relation loan portfolio to credit risk and banking system interest income. The changing economic environment of banks influences their risks and activity results, so it is important to find the macroeconomic indicators that can determine the changes in debtors’ credit risk and banks’ financial condition. The banking system performs very important functions in a country’s financial system, so for its stability it is important to be able to predict the financial results of the banking system in relation to changes in the economic environment. The new Basel III Agreement seeks to improve the financial sector’s resistance to the possible negative scenarios in the economy and motivates to develop the credit risk assessment models considering their dependence on business cycles. For this reason, the statistical dependence between the set of macroeconomic factors and the loan portfolio credit risk together with interest income were estimated in this research. A statistical classification and regression tree model was developed, which allows to predict the possible changes in the interest income of a country’s banks with the 82.7% accuracy.

scholarly journals Determinants of Credit Risk: Evidence From Commercial Banks in Malaysia

2021 ◽  
Vol 16 (1) ◽  
pp. 134-143
Author(s):  
Noor Hafizha Muhamad Yusuf ◽  
Mohamad Shukery Mohamad Shamsudin ◽  
Wan Mohd Yaseer Mohd Abdoh ◽  
Noor Sharida Badri Shah ◽  
Rozihanim Shekh Zain
Keyword(s):  
Credit Risk ◽  
Significant Relationship ◽  
Commercial Banks ◽  
Fe Model ◽  
Panel Regression ◽  
Return On Equity ◽  
Factors Affecting ◽  
Independent Variables ◽  
Interest Income ◽  
The Relationship

The purpose of this study is to determine the relationship between microeconomic factors with credit risk among selected commercial banks in Malaysia. For this purpose, a sample of seven out of 27 commercial banks in Malaysia was selected and the microeconomic factors affecting credit risk with six measurements of return on asset (ROA), bank size, leverage, the ratio of capital, interest income and return on equity (ROE) were examined by applying Panel Regression Fixed Effect (FE) Model for a period 20 years from 1998 to 2017. The scope of the study covers seven selected commercial banks in Malaysia namely: Affin Bank Berhad, Alliance Bank Malaysia Berhad, CIMB Bank Berhad, Hong Leong Bank Berhad, Malayan Banking Berhad, Public Bank Berhad and RHB Bank Berhad. This study is using credit risk proxy by non-performing loan for dependent variable while independent variables that have been selected were returned on asset (ROA), bank size, leverage, the ratio of capital, interest income and return on equity (ROE). The findings of the study managed to reject the null hypothesis for return on asset, bank size, leverage, interest income and return on equity which indicates the five microeconomic variables give a significant relationship with credit risk. There are positive relationships between leverage, interest income and return on equity with credit risk while return on asset, bank size and ratio of capital are negatively related to credit risk. However, the study fails to find any significant relationship between the ratio of capital and credit risk for commercial banks in Malaysia.

scholarly journals Economic capital for credit risk in the trading book

2011 ◽  
Vol 14 (2) ◽  
pp. 138-154
Author(s):  
Wynand Smit ◽  
Gary Van Vuuren ◽  
Paul Styger
Keyword(s):  
Financial Crisis ◽  
Credit Risk ◽  
Capital Requirements ◽  
Basel Ii ◽  
Economic Capital ◽  
Risk Capital ◽  
Loss Data

The Basel II accord sets out detailed formulations (in its Internal Ratings Based approaches) for determining credit risk capital in the banking book, but until recently, credit risk in the trading book was largely ignored. The financial crisis in 2007/08 exposed this oversight: woefully inadequate trading book capital led to considerable losses which resulted in, inter alia, the imposition of severe capital requirements on credit riskprone securities in the trading book.  Using empirical loss data, this article investigates whether these requirements are appropriate for the trading book and proposes a possible alternative which banks may use to determine economic capital.

scholarly journals Economic Capital Allocation for Corporate Borrowers Credit Risk Coverage

2021 ◽  
Vol 14 ◽  
pp. 20-37
Author(s):  
Irina V. Berezinets ◽  
◽  
Anastasiya S. Loginova ◽  
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Commercial Bank ◽  
Kernel Regression ◽  
Capital Allocation ◽  
Economic Capital ◽  
Credit Risk Management ◽  
Theoretical Methods ◽  
Starting Point ◽  
Risk Coverage

Both the estimation of economic capital for bank's credit risk coverage, and the allocation of economic capital by sources in order to determine the contribution of individual elements to total credit risk play an important role in the area of risk management of a bank. The estimation of a bank's economic capital for credit risk coverage serves as a starting point in the management of a bank's credit risk, while the allocation of economic capital to cover credit risk among individual elements allows to answer the question of how individual elements contribute to the total credit risk of a bank, which makes it possible to take certain decisions on credit risk management based on the obtained results of allocation. Nowadays, there are various theoretical methods and approaches to solve this nontrivial issue. The authors of the article attempted to implement them in practice, to estimate economic capital for credit risk coverage of a commercial bank and to allocate it among elements. This problem was solved applying the Euler allocation method and kernel regression.

scholarly journals PENGARUH RESIKO KREDIT, KECUKUPAN MODAL, HUTANG, DAN PENDAPATAN BUNGA TERHADAP PROFITABILITAS PADA PERUSAHAAN PERBANKAN YANG TERDAFTAR DI BURSA EFEK INDONESIA

2019 ◽  
pp. 197-211
Author(s):  
Boniara Sinabang ◽  
Sabeth Sembiring
Keyword(s):  
Credit Risk ◽  
Interest Rates ◽  
Stock Exchange ◽  
Secondary Data ◽  
Capital Adequacy ◽  
Test Results ◽  
Risk Capital ◽  
Significance Level ◽  
Simultaneous Test ◽  
Interest Income

This study aims to examine the effect of credit risk as measured by non-performing loans, the level of capital adequacy as measured by the capital adequacy ratio, debt as measured by debt to equity ratio, and interest income as measured by net interst margin on the level of profitability as measured by return on assets in banking companies listed on the Indonesia Stock Exchange (IDX). This research is classified as causative research. The population in this study were all banking companies listed on the Indonesia Stock Exchange in 2011 to 2015. While the sample of this study was determined by purposive sampling method so that 24 sample companies were obtained. The type of data used was secondary data obtained from www.idx.co.id. The analytical method used is multiple regression analysis with a significance level of 5%. The partial test results show that credit and debt risk have a negative and significant effect on profitability, capital adequacy has no effect on profitability, interest income has a positive and significant effect on profitability. Simultaneous test results show that credit risk, capital adequacy, debt, and interest income affect profitability. Therefore, banks consider the factors of credit risk, capital adequacy, debt and interest income in the context of achieving the expected profit level by taking into account the quality of credit distribution, cultivate capital well and use capital effectively, debt that is made into productive assets is well managed, as well as maintaining loan interest rates offered so as to generate high capital.

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