scholarly journals Loan Portfolio Risk and Capital Adequacy: A New Approach to Evaluating the Riskiness of Banks

2019 ◽  
Author(s):  
Charles M.C. Lee ◽  
Qinlin Zhong ◽  
Yanruo Wang
Keyword(s):  
Capital Adequacy ◽  
Portfolio Risk ◽  
Loan Portfolio ◽  
New Approach

Basel regulatory capital formula revised

2021 ◽  
pp. 2142006
Author(s):  
Yimin Yang ◽  
Min Wu
Keyword(s):  
Additional Data ◽  
Capital Adequacy ◽  
Capital Requirement ◽  
Regulatory Capital ◽  
New Approach ◽  
Internal Rating ◽  
Loss Experience ◽  
As Stress ◽  
Risk Parameters ◽  
Asset Correlation

Credit capital requirement is a key component of Basel implementation to assess a bank’s capital adequacy. Under the Internal Rating-Based approach, some risk parameters, including Asset Correlation, are implicit assumptions that cannot be observed directly. While some heuristic formulae of Asset Correlation for different business segments are provided by Basel, they may not be fully consistent with each bank’s loss experience and thus may cause systematic underestimation of banks’ capital requirement. To address this issue, we derive an equivalent capital formula in such way that the unobservable Asset Correlation is replaced by an observable and well-understood parameter called Default Volatility, which can be calibrated based on banks’ historical loss experience. This new approach simplifies parameter estimation process without requiring additional data, as well as making risk analysis such as stress testing more credible.

A comprehensive approach to assessing the level of economic security of Ukrainian banks

2020 ◽  
pp. 92-99
Author(s):  
Oksana Kopylyuk ◽  
Nataliya Zhurybida
Keyword(s):  
Banking System ◽  
Economic Security ◽  
Portfolio Risk ◽  
Loan Portfolio ◽  
Micro Level ◽  
Low Levels ◽  
Methodological Approaches ◽  
Lending Activity ◽  
Security Indicators ◽  
High Level

Existing methodological approaches to assessing the level of economic security of Ukrainian banks are revealed and the need to improve them is substantiated. The author proposes the method of determining the level of economic security of banks at the micro level. Estimated values of economic security indicators and their assessment in points made it possible to group institutions by the level of economic security and to determine the positioning of banks depending on ownership. Institutions with a high level of economic security include banks, which, according to 8 indicators, have accumulated a total number of 61 to 80 points. A satisfactory level of economic security is characteristic of banks, whose quantitative assessment for a certain amount of indicators ranges from 41 to 60 points. Low levels of economic security are inherent in institutions with an overall score of 21-40. Institutions with a critical level of security include banks with a total score of up to 20 points, whose activities are accompanied by violations of indicator values and destabilizing effects on the banking system. The validation of this methodology was carried out in all solvent banks of Ukraine, which operated in 2015 and 2019. Based on the grouping of institutions by the level of economic security, the threats and dangers that accompanied the activities of banks were identified. The main threats to the economic security of state-owned banks were: the highest share of problem loans in the aggregate loan portfolio, risk of operating activities, reduction of their lending activity. Institutions of foreign banking groups were largely characterized by high, satisfactory, and low levels of economic security. This methodological toolkit is suggested to be used to strengthen the market position and increase the security of the functioning of Ukrainian banks.

The Impacts of Monetary Policy on Banks’ Loan Portfolio Risk-Taking

2021 ◽  
Author(s):  
Luiz F.S. Adão ◽  
Douglas Silveira ◽  
Regis Augusto Ely ◽  
Daniel O. Cajueiro
Keyword(s):  
Monetary Policy ◽  
Risk Taking ◽  
Portfolio Risk ◽  
Loan Portfolio

Modeling agricultural loan portfolio risk in a stochastic environment

2002 ◽  
Vol 62 (1) ◽  
pp. 25-39 ◽  
Author(s):  
Richard L. Gallagher
Keyword(s):  
Stochastic Environment ◽  
Portfolio Risk ◽  
Loan Portfolio

Portfolio diversification during monetary loosening policy

2015 ◽  
Vol 16 (2) ◽  
pp. 197-214
Author(s):  
Kamil Makiel
Keyword(s):  
Financial Stability ◽  
Mining Industry ◽  
Portfolio Risk ◽  
New Approach ◽  
Content Type ◽  
Market Portfolio ◽  
The Us ◽  
The Usa ◽  
The Impact ◽  
A Company

Purpose – The purpose of the paper is to analyze the impact of quantitative easing (QE) performed in the USA on relationship between assets mainly from mining and oil industries. Based on the empirical results, the method of diversified portfolio creation has been proposed. Design/methodology/approach – Nine DCC-GARCH-type models have been estimated for each group centered around a main asset: a company from the oil or mining industry, the appropriate currency pair for its market of origin, commodities which could be used for the diversification of risk involved in investing in a portfolio containing the company, and the largest company from the same industry listed on the US market. Each series of conditional correlations was analyzed with regard to the changes that occurred during the various stages of QE. Findings – The correlations are shown to be stabilizing in the successive stages of QE. The most significant changes in the distribution of correlations can be observed after the first stage of QE. The effects of QE are evident not only in the USA but also in other countries; however, the level of its influence varies between different markets and assets. It is possible to diversify the inflation, currency and market portfolio risk by appropriately chosen asset decomposition. Research limitations/implications – The DCC model is limited, so to provide more precise results, more sophisticated models can be estimated and compared. Practical implications – The paper investigate the fact of stabilization in financial markets relations. The findings may prove the validity of continuation of QE. A portfolio creation method has been proposed – it has been stated that including commodity in portfolio is more appropriate then only-bond–equity mix. Originality/value – The new approach of analyzing financial stability has been proposed – the control for stability of conditional correlation.

scholarly journals Concentración del riesgo de cartera crediticia de los bancos: Medición, límites de deudores individuales y adecuación de capital

1999 ◽  
Author(s):  
Javier Márquez Diez-Canedo ◽  
Calixto López Castañón
Keyword(s):  
Risk Management ◽  
Confidence Level ◽  
Value At Risk ◽  
Portfolio Theory ◽  
Bank Loans ◽  
Capital Adequacy ◽  
Fixed Income ◽  
Direct Relation ◽  
Loan Portfolio ◽  
Different Dimensions

Formal work on credit concentration risk has focused mainly on applying portfolio theory to portfolios of traded fixed income assets. No comparable counterpart has emerged however, for dealing with portfolios of everyday bank loans for which information compatible with portfolio theory is difficult or too costly to obtain. Based on the default behavior of the portfolio, as represented by default probabilities of the loans and their covariance matrix, a model is developed which relates a measure of concentration of the loan portfolio with value at risk in order to guarantee capital adequacy within a specified confidence level. It is seen that the “Herfindahl-Hirshman” index emerges naturally as a measure of concentration, and that there is a direct relation between this index and the “single obligor limit”, which is explored in detail. The results show how individual limits can be set on loans, along different dimensions of concentration, so as to ensure capital adequacy for the risk structure of the portfolio. Throughout the paper, the implications for risk management and regulation are discussed

The Impacts of Monetary Policy on Banks' Loan Portfolio Risk-taking

2021 ◽  
Author(s):  
Luiz F.S. Adão ◽  
Douglas Silveira ◽  
Regis Augusto Ely ◽  
Daniel O. Cajueiro
Keyword(s):  
Monetary Policy ◽  
Risk Taking ◽  
Portfolio Risk ◽  
Loan Portfolio

scholarly journals NEW PORTFOLIO RISK OPTIMISATION METHOD FOR STRONGLY DEPENDENT ASSETS

2017 ◽  
Vol 20 (3) ◽  
Author(s):  
PIOTR FRYDRYCH ◽  
ROMAN SZEWCZYK
Keyword(s):  
Time Series ◽  
Lower Risk ◽  
Portfolio Optimisation ◽  
Portfolio Risk ◽  
New Approach ◽  
Threshold Autoregressive ◽  
Optimisation Methods

<p>New market time series Multiplexed Hysteretic Threshold Autoregressive (MHTAR) model was developed to test the correlation between assets stability, which is the basis of MPT theory and other portfolio optimisation methods. New approach to risk optimisation was presented, which can efficiently lower risk for strongly dependent assets. Developed Random Trading Signals Multiplexing (RTSM) method enables diversification of risk for any portfolio and increase safety for assets with low liquidity.</p>

scholarly journals A NEW PRICING APPROACH FOR SME LOANS ISSUED BY COMMERCIAL BANKS BASED ON CREDIT SCORE MAPPING AND ARCHIMEDEAN COPULA SIMULATION

2019 ◽  
Vol 20 (4) ◽  
pp. 618-632
Author(s):  
Chang Liu ◽  
Haoming Shi ◽  
Yujun Cai ◽  
Shu Shen ◽  
Dongtao Lin
Keyword(s):  
Interest Rates ◽  
Credit Rating ◽  
Risk Measures ◽  
Economic Capital ◽  
Archimedean Copula ◽  
Capital Adequacy ◽  
Loan Pricing ◽  
Loan Portfolio ◽  
Credit Score ◽  
Loan Interest Rates

The traditional loans pricing methods are usually based on risk measures of individual loan’s characteristics without considering the correlation between the defaults of different loans and the contribution of individual loans to the entire loan portfolio. In this study, using account-level loans data of 2010-2016 abstracted from 2 databases kindly provided by a Chinese commercial bank, the authors choose Archimedean Copula to fit the default relationship between loans, combined with the loss distribution function constructed to measure the economic capital of the loan portfolio, to propose a loan pricing method that is more suitable for measuring the unique risk characteristic of SMEs loans. Empirical evidence shows that compared with the traditional loan pricing model, this new proposed one, requiring lower loan interest rates from customers with higher credit rating, while higher loan interest rates from customers with lower credit rating, could thus be able to provide higher risk-adjusted returns, higher economic capital adequacy ratios, and ultimately stronger banks’ capabilities to tolerate risk events. Although there might still be some issues and limitations in the study, the method proposed in this study could be of interest not only to the banks’ management, but also to banking regulators as well.

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