The Credit Securitisation Process as a Tool of Portfolio Credit Risk Managing

2012 ◽  
pp. 5-28
Author(s):  
Di Clemente Annalisa
Keyword(s):  
Credit Risk ◽  
Simulation Analysis ◽  
Risk Mitigation ◽  
Probability Of Default ◽  
Loan Portfolio ◽  
Asset Return ◽  
Portfolio Credit Risk ◽  
The Impact ◽  
Monte Carlo Simulation Model

This study explores the role of the credit securitisation process in managing the credit risk amount of the banking loan portfolio, when the bank originator retains a residual equitylike class as illiquid first loss position (FLP). An Importance Sampling Monte Carlo simulation model has been implemented for estimating the portfolio credit risk amount, taking into account the portfolio credit risk mitigation effect provided by the credit securitisation process. This study identifies the credit asset pool able to produce the larger effect of credit risk reduction on the loan portfolio, when the asset pool is unloaded off the banking book. Moreover, this simulation analysis quantifies the extent of the portfolio credit risk mitigation, produced by the securitisation process of the asset pool previously identified. The impact of the securitisation activity has been also investigated when the probability of default and the asset return correlation of the obligors in portfolio are changing.

scholarly journals Modeling Portfolio Credit Risk Taking into Account the Default Correlations Using a Copula Approach: Implementation to an Italian Loan Portfolio

2020 ◽  
Vol 13 (6) ◽  
pp. 129
Author(s):  
Annalisa Di Clemente
Keyword(s):  
Credit Risk ◽  
Value At Risk ◽  
Risk Measure ◽  
Dependence Structure ◽  
Quantitative Methodology ◽  
Loan Portfolio ◽  
Recovery Rates ◽  
Asset Return ◽  
Portfolio Credit Risk ◽  
Copula Approach

This work aims to illustrate an advanced quantitative methodology for measuring the credit risk of a loan portfolio allowing for diversification effects. Also, this methodology can allocate the credit capital coherently to each counterparty in the portfolio. The analytical approach used for estimating the portfolio credit risk is a binomial type based on a Monte Carlo Simulation. This method takes into account the default correlations among the credit counterparties in the portfolio by following a copula approach and utilizing the asset return correlations of the obligors, as estimated by rigorous statistical methods. Moreover, this model considers the recovery rates as stochastic and dependent on each other and on the time until defaults. The methodology utilized for coherently allocating credit capital in the portfolio estimates the marginal contributions of each obligor to the overall risk of the loan portfolio in terms of Expected Shortfall (ES), a risk measure more coherent and conservative than the traditional measure of Value-at-Risk (VaR). Finally, this advanced analytical structure is implemented to a hypothetical, but typical, loan portfolio of an Italian commercial bank operating across the overall national country. The national loan portfolio is composed of 17 sub-portfolios, or geographic clusters of credit exposures to 10,500 non-financial firms (or corporates) belonging to each geo-cluster or sub-portfolio. The outcomes, in terms of correlations, portfolio risk measures and capital allocations obtained from this advanced analytical framework, are compared with the results found by implementing the Internal Rating Based (IRB) approach of Basel II and III. Our chief conclusion is that the IRB model is unable to capture the real credit risk of loan portfolios because it does not take into account the actual dependence structure among the default events, and between the recovery rates and the default events. We underline that the adoption of this regulatory model can produce a dangerous underestimation of the portfolio credit risk, especially when the economic uncertainty and the volatility of the financial markets increase.

scholarly journals The Impact Of PD-LGD Correlation On Expected Loss And Economic Capital

2017 ◽  
Vol 16 (3) ◽  
pp. 157-170 ◽  
Author(s):  
Gary Van Vuuren ◽  
Riaan De Jongh ◽  
Tanja Verster
Keyword(s):  
Credit Risk ◽  
Real Time ◽  
Economic Capital ◽  
Probability Of Default ◽  
Expected Loss ◽  
Loan Portfolio ◽  
Correlation Dependence ◽  
Loss Given Default ◽  
Default Data ◽  
The Impact

The Basel regulatory credit risk rules for expected losses require banks use downturn loss given default (LGD) estimates because the correlation between the probability of default (PD) and LGD is not captured, even though this has been repeatedly demonstrated by empirical research. A model is examined which captures this correlation using empirically-observed default frequencies and simulated LGD and default data of a loan portfolio. The model is tested under various conditions dictated by input parameters. Having established an estimate of the impact on expected losses, it is speculated that the model be calibrated using banks' own loss data to compensate for the omission of correlation dependence. Because the model relies on observed default frequencies, it could be used to adapt in real time, forcing provisions to be dynamically allocated.

Quantitative Selection of Variation Reduction Plans

1998 ◽  
Author(s):  
Anna C. Thornton
Keyword(s):  
Risk Mitigation ◽  
Cost Effective ◽  
Variation Reduction ◽  
Multiple Quality Characteristics ◽  
Cost Effective Approach ◽  
Manufacturing Performance ◽  
The Impact ◽  
Manufacturing Variation ◽  
Selection Of

Abstract Quality has been a rallying call in the design and manufacturing world for the last two decades. One way to improve quality is to reduce the impact of manufacturing variation. Variation risk mitigation is challenging especially when a product has multiple quality characteristics and complex production and assembly. It is common wisdom that companies should identify and mitigate the risk associated with variation throughout the design process. As yield problems are identified, they should be mitigated using the most cost effective approach. One approach to variation risk mitigation is variation reduction (VR). VR targets reduction of variation introduced by existing manufacturing processes using tools such as Design of Experiments (DOE) and robust design. Many companies have specialized groups that specialize in these methods. VR teams have the role of improving manufacturing performance; however, these teams are limited in their resources. In addition, no tools exist to quantitatively determine where a VR team’s efforts are most effectively deployed. This paper provides a mathematical and optimization model to best allocate VR resources in a complex product.

The role of political leaders in mitigating the risk of mass atrocities: an analysis of Khama, Kaunda and Nyerere

2020 ◽  
Author(s):  
Stephen McLoughlin
Keyword(s):  
Risk Mitigation ◽  
Inhibitory Effect ◽  
General Question ◽  
Political Leaders ◽  
Genocide Studies ◽  
Political Environments ◽  
Structural Risk ◽  
Atrocity Crimes ◽  
The Impact

Abstract This article examines the impact that three political leaders—Seretse Khama, Kenneth Kaunda and Julius Nyerere—had on navigating the long-term risk associated with mass atrocities. While the scholarship on comparative genocide studies has acknowledged the crucial dimension of leadership in the perpetration of such violence, very little is known about the preventive influence of leaders in cases where risk is present. This influence works both ways: the ideas, decisions and policies of political leaders are often the most instrumental factor in effective processes of risk mitigation. Yet to date, there has been no systematic study of the role of leadership in managing and ameliorating risk associated with mass atrocities. Indeed, the more general question of why mass atrocities do not occur is also largely neglected. I argue that these leaders were cognisant of the disruptive potential of tribal, ethnic and religious division; they advocated for inclusive national identities and developed policies that fostered social cohesion; and were effective in creating social and political environments that had an inhibitory effect on structural risk factors associated with atrocity crimes.

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 An Assessment of the Impact of Credit Risk Management and Performance on Loan Portfolio at International Bank Liberia

2021 ◽  
pp. 55-64
Author(s):  
Alvin Boye Dolo
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
The Body ◽  
Management Policy ◽  
Credit Risk Management ◽  
Loan Portfolio ◽  
Net Worth ◽  
International Bank ◽  
And Performance ◽  
The Impact

This research entitled “An Assessment of the impact of credit risk management and performance on loan portfolio at International Bank Liberia Limited from 2015-2017 contributed to the body of knowledge to the beneficiaries. It findings are also important for the Central Bank to use in monitoring credit scoring and history across all commercial bank with in the country. This study was quantitative in nature, and involves mathematical modelling in order to determine the effect of changes in interest rates on profit and net worth of the sampled banks. This study uses panel data and assumes that the effect of interest rate changes vary across the observations and over time, therefore the use of stochastic econometric (panel regression analysis) process is appropriate. The population of the study will consist of 150 credit staffs and other staffs of IBLL. The study adopt a census study and collect data for two years from 1st January, 2015 to 31st December, 2017 and the researcher used sample out 85 respondents representing 57% as the sample size from the population of 150 persons from the study area. The findings reveals that it was established from the study that 25% of the respondents who were picked from the institution agreed that credit score is one of the major system used by the bank in determining loan and 32% selected credit history. It was also observed that that bank operate within a defined credit granting criteria. The findings also show that IBLL established a system of independent, ongoing assessment of the bank‟s credit risk management. It was proven that 48% of the respondents agree while 41% strongly agree. It was established that IBLL have a loan risk management policy in place. This policy is very crucial in providing guidelines on how to manage the various risks the bank encounter in their lending activities. Members of the bank and regulators are those responsible for the formulation of the credit policy with less input from employees.

scholarly journals The Impact of the Internal Audit in Reducing Credit Risk in Commercial Banks in Kosovo

2016 ◽  
Vol 12 (4) ◽  
pp. 268
Author(s):  
Shqipdona Hashani Siqani ◽  
Edona Sekiraca
Keyword(s):  
Credit Risk ◽  
Commercial Bank ◽  
Commercial Banks ◽  
Internal Audit ◽  
Portfolio Diversification ◽  
Credit Risk Management ◽  
Loan Portfolio ◽  
Survey Results ◽  
The Republic ◽  
The Impact

Credit risk represents the vast majority of the risk in the context of estimating the capacity of the transfer of risk from commercial banks. Any commercial bank operating, in Kosovo, must have a system for managing credit risk. An important and essential process, such as the management of the credit risk, cannot be carried out without the aid of internal audit. From the survey results, it was concluded that the process of auditing the banks recommended the implementation of policies for managing credit risk of the respective commercial bank’s policy. This also include the policy of credit risk management of the Central Bank of the Republic of Kosovo, implementation of procedures, regulations and rules for credit exposure, loan portfolio diversification, training of staff of the credit risk involved in completing the loan files, etc.

scholarly journals MINIMIZING CREDIT RISK AND IMPROVING THE QUALITY OF THE CREDIT PORTFOLIO OF THE COMMERCIAL BANK

2017 ◽  
pp. 18-23
Author(s):  
O. M. Ermolenko
Keyword(s):  
Credit Risk ◽  
Foreign Banks ◽  
Credit Policy ◽  
Loan Portfolio ◽  
Financial Uncertainty ◽  
Main Factors ◽  
Lending Activity ◽  
Credit Portfolio

The article examines the main factors shaping the credit risk and defines the role of credit risk in the process of formation of a credit portfolio of commercial banks. In conditions of instability and financial uncertainty, credit institutions are faced with risks, including credit, because credit operations occupy the largest share in their activities. The quality of loan portfolio determines the capabilities of the Bank in its functioning on the market of credit products, which affects the level of lending activity and the possibility of recovery in the credit market. The process associated with the loans is determined by the credit quality of the banks. Statistics data of the operation activities of commercial domestic and foreign banks suggests that a well-organized loan process, efficiently formed loan portfolio and conduct credit policy, the Bank will provide prosperity in the future.

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