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Ostrovska, N. "Modeling of credit portfolio management efficiency." Galic'kij ekonomičnij visnik 70, no. 3 (2021): 89–101. http://dx.doi.org/10.33108/galicianvisnyk_tntu2021.03.089.
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Credit operations, among the great variety of services provided by the bank, are one of the most important activities. In the assets of commercial banks, loans occupy a strong position of the most extensional and profitable items. The reliability and financial stability of commercial banks depends on the composition and structure of the bank's loan portfolio and the process of its management. Under current conditions, the development and improvement of the bank's loan portfolio management system intended to minimize the credit risks and ensure the sustainable operation of commercial banks have become particularly important. Crisis phenomena in economy have proved that the activities of any economic entity is associated with uncertainty in market development. Adverse developments in the world markets directly affected the solvency of borrowers of many banks. The increase in defaults of most borrowers resulted in the increase in defaults on loans, causing the increase in overdue debt, lower profitability and liquidity problems in banks. Thus, the recent crisis in the world economy, including Ukrainian economy, has demonstrated the failure of the methods used to assess and manage credit risk in banking, as well as the imperfection of the methods used to manage the loan portfolios of commercial banks. The results of the previous carried out investigation indicate that in order to form the correct management decisions and take practical actions concerning the formation of loan portfolio for commercial bank, it is necessary to assess its status. In this regard, the method of econometric modeling (determination of the relationship between gross domestic product and overdue debt of the banking system in Ukraine, the relationship between the volume of loans issued by banks and the discount rate; the relationship between the volume of loans issued to individuals and the volume of the loan portfolio in general) is differentiated in this paper from other estimation methods. This method made it possible to determine the effectiveness of loan portfolio management of commercial banks. The results of the calculations provide reasons to confirm that there is insignificant relationship between the level of loans to individuals and the loan portfolio.
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Malla, Buddhi Kumar. "Credit Portfolio Management in Nepalese Commercial Banks." Journal of Nepalese Business Studies 10, no. 1 (February 5, 2018): 101–9. http://dx.doi.org/10.3126/jnbs.v10i1.19138.
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Credit portfolio management is a key function for banks (and other financial institutions, including insurers and institutional investors) with large, multifaceted portfolios of credit, often including illiquid loans (Nario, Pfister, Poppensieker & Stegemann, 2016). After global financial crisis of 2007-2008, the credit portfolio management function has become most crucial functions of the bank and financial institutions. The Basel III, third installment of Basel accord was developed after crisis to strengthen bank capital requirements by increasing bank liquidity and decreasing bank leverage that encourages banks to measure credit risk of bank's portfolios. The Basel committee also raises an issue concerning the application of the risk weights used in the capital adequacy framework to determine exposure to risk assets for the purpose of determining large credit exposure (Morris, 2001).The portfolio management of the Nepalese banking sector has been improved remarkably during last 10 years due to the strict regulation of Nepal Rastra Bank. This journal will try to describe the present credit portfolio management practice of Nepalese commercial banks by using qualitative and quantitative methods. In this study, concentration of banks for credit portfolio management has been studied by analyzing security wise loan, product wise loan and sector wise concentration of loan where the researcher has found assorted outcomes. This research also aims to provide some suggestions to overcome with problems associated with credit portfolio.The Journal of Nepalese Business Studies Vol. X No. 1 December 2017, Page: 101-109
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Vosloo, Pieter G., and Paul Styger. "The process approach to the management of loan portfolios." Journal of Economic and Financial Sciences 3, no. 2 (October 31, 2009): 171–88. http://dx.doi.org/10.4102/jef.v3i2.341.
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Many factors impacted the credit risk environment in the past decade, the most significant of which were the Basel II Capital Accord requirements. Foremost in the financial industry’s focus was, and still is, the implementation of these requirements and their associated outcomes. In the aftermath of the Basel II implementation, credit risk managers’ focus will return to understanding the portfolio philosophy in managing their credit portfolios. They will be required to adapt an integrated risk management framework, taking into account the interdependence of various building blocks, data fields and model outcomes. This paper develops and proposes a portfolio approach to the management of loan portfolios within an integrated risk management framework. The significance of this approach for the credit portfolio risk management environment and its role in maximising shareholder value are highlighted.
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SOLOVEI, Nadiia, and Ihor SKRYPNYCHENKO. "Problems of qualitative evaluation of commercial bank loan." Economics. Finances. Law, no. 1/2 (January 31, 2020): 15–19. http://dx.doi.org/10.37634/efp.2020.1(2).3.
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The article defines the nature of the loan portfolio, as well as the problems in the assessment and analysis of the commercial bank loan portfolio. In order to improve the existing credit portfolio of the bank, the dynamics, categories of the borrower ratio and the quality of the loan portfolio are analyzed, based on the obtained data, significant factors influencing the formation and management of the analyzed bank's loan portfolio are determined. Generation of a loan portfolio is usually subject to issuance of loans with maximum yield on the same terms. The profitability of a loan transaction is determined by the amount of the interest rate on the specific loan, the duration of the loan and the accepted system of calculation of interest payments. Practice shows that the success of managing the efficiency of banking investments and the formation of an effective structure of the bank's credit portfolio depend to a large extent on the skills of managing the banking institutions that carry out optimal formation, management of the credit portfolio and good management to ensure the efficiency of activities with the least possible risk and maximize results. The quality of the loan portfolio is analyzed using the coefficient method based on the calculation and analysis of trends in the development of relevant quantitative indicators. In the economic literature, the indicators that we can use to assess the quality of a bank's loan portfolio are divided into two groups: the credit portfolio risk index and the profitability of the credit business. The results of the analysis allow us to draw conclusions about the level of risk and profitability of the bank's loan portfolio and to develop measures to improve the effectiveness of the bank's credit policy. Based on the analysis of the structure and quality of the loan portfolio, the Bank's management is given an opinion to consider in order to determine the priority instructions for the placement of credit resources, limit the concentration and diversification of the loan portfolio and set limits on the execution of individual loans. It is concluded that prudent credit policy with an increase in rates, constant monitoring of the components of the credit portfolio, urgent management measures of banking institutions in the field of risk management should lead to an increase in lending and improve the quality of the portfolio management system. It is noted that the implementation of mainly quality measures to improve the structure of the loan portfolio will inevitably affect the financial stability of the bank and business efficiency, as well as increase its competitiveness and operational security.
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BELIKOVA, Tetiana, and Marharyta PUSHKINA. "Methods for analyzing the quality of a banks loan portfolio." Economics. Finances. Law, no. 4/1 (April 30, 2020): 35–40. http://dx.doi.org/10.37634/efp.2020.4(1).8.
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Lending is one of the major banking institutions. But lending has some risks of varying degrees. The main purpose of banks is to repay loans and to maximize profits. To do this, banks need to implement an efficient, flexible and modern credit portfolio quality management system. An important element of this system is the analysis of the quality of the loan portfolio. That is why the consideration of the methods by which banks can carry out this analysis is a very actual topic. The purpose of this paper is to review methods of analyzing the quality of a bank's loan portfolio, as well as to outline the disadvantages and benefits of each method. The paper examines the most common and modern approaches to defining the concept of «bank loan portfolio». The types of loan portfolio are considered. The definition of the quality of the bank loan portfolio is given. The definition of bank credit portfolio management is given and the basic elements of credit portfolio management are given. The main methods to be used in assessing the quality of a bank's loan portfolio are identified. They are divided into three groups: methods of expert judgment, statistical and analytical methods. A more detailed description of the methods in the three groups listed above is given. The rating method, the «Decision Tree» method, coefficient analysis, Monte Carlo method, scoring, correlation-regression analysis, taxonomic analysis and stress testing are characterized. The advantages and disadvantages of each method are also given. Indicators to assess the quality of the bank's loan portfolio are considered: the credit portfolio risk indicators and the profitability of credit operations. After the study, it was concluded that the above methods of analysis of the quality of the loan portfolio should be applied comprehensively. It is determined that currently the banks of Ukraine do not use the whole analytical set of methods, but choose for themselves several and constantly use them in the analysis of the quality of the loan portfolio. In order to ensure effective management of the bank's credit portfolio, it is necessary to constantly monitor the quality of the bank's credit portfolio for early detection of credit risk and its prevention, as well as for detection of deterioration of profitability indicators.
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Adzobu, Lydia Dzidzor, Elipkimi Komla Agbloyor, and Anthony Aboagye. "The effect of loan portfolio diversification on banks’ risks and return." Managerial Finance 43, no. 11 (November 13, 2017): 1274–91. http://dx.doi.org/10.1108/mf-10-2016-0292.
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Purpose The purpose of this paper is to test whether diversification of credit portfolios across economic sectors leads to improved profitability and reduced credit risks for Ghanaian banks that have been characterized by high non-performing loans in recent times (IMF, 2011). Design/methodology/approach Static and dynamic estimations, namely Prais-Winsten, fixed and random effect estimators, feasible generalized least squares as well as the system generalized methods of moments are employed on the annual data of 30 Ghanaian banks that operated between 2007 and 2014 to determine the effect of loan portfolio diversification on bank performance. Findings The study shows that loan portfolio diversification does not improve banks’ profitability nor does it reduce banks’ credit risks. Research limitations/implications The study focuses on a single banking system in Africa largely as a result of data limitation. Practical implications The study emphasizes the need for banks to perform a careful assessment of the effects of their lending policies geared toward increased sectoral diversification on their monitoring efficiency and effectiveness. A further investment in loan screening and monitoring is necessary to minimize credit risks. Originality/value This study is the first to present empirical evidence on the effects of loan portfolio diversification on bank performance in an emerging banking market in Africa.
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Nwosi, Anele Andrew, and Akani Elfreda Nwakaego. "Credit Risk Management and Sub-Standard Loans of Commercial Banks in Nigeria: A Panel Data Analysis." International Journal of Finance Research 2, no. 3 (October 23, 2021): 169–90. http://dx.doi.org/10.47747/ijfr.v2i3.325.
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This study examined the effect of credit risk management on sub-standard loan portfolio of quoted commercial banks in Nigeria. Cross sectional data was sourced from financial statement of commercial banks and Central Bank of Nigeria Statistical bulletin from 2009-2018. Sub-standard portfolio was used as dependent variable while bank risk diversification, Basel risk compliance, risk transfer were used as independent variables. Panel data methodology was employed while the fixed effects model was used as estimation technique at 5% level of significance. Fixed effects, random effects and pooled estimates were tested while the Hausman test was used to determine the best fit. Panel unit roots and panel cointegration analysis were conducted on the study. The empirical results proved that 41.7 per cent variations in the sub-sub-standard loans’ portfolio was explained by credit risk management. From the random effect results, bank risk transfer and Basel compliance have positive relationship with sub-standard loan portfolio while risk bank risk diversification have negative relationship with sub-stand ad loan portfolio of the commercial banks. We recommend that management of the commercial banks should be pro-active and devise effective measures of managing credit risk to reduce the incidence of sub-standard loans. The monetary authority should monitor the Basel compliance rate and policies of the commercial banks to credit risk management
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Knapp, Morris, and Alan Gart. "Post-merger changes in bank credit risk: 1991-2006." Managerial Finance 40, no. 1 (January 7, 2014): 51–71. http://dx.doi.org/10.1108/mf-03-2013-0052.
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Purpose – This paper aims to examine the post-merger changes in the credit risk profile of merging bank holding companies and tests whether there is an increase in credit risk after a merger due to changes in the mix of loans in the portfolio. Design/methodology/approach – The authors use the expected variability of the credit risk of a loan portfolio based on the mix of loan types in the portfolio and the variability of the industry credit losses of each type following the standard Markowitz procedure for finding the standard deviation of an investment portfolio. The authors then test to see whether there has been a significant change in the expected variability (the credit risk profile) after a merger. Findings – The authors find that there are significant differences in both the level and variability of loan charge-offs and non-performing loans (NPL) among the various loan categories. The authors also find significant changes in the mix of loan categories in the loan portfolio after a merger. In addition, the authors find that the expected variability in both the charge-off rate and the NPL rate rises significantly after a merger. Research limitations/implications – This is the first of two papers looking at post-merger changes in credit risk based simply on the changes in the mix of loan types; it does not consider the actual post-merger credit performance of the specific mergers. That will be addressed in a subsequent paper. Practical implications – Financial analysts evaluating banking merger announcements may wish to include the impact of the likely shifts in loan mix and credit risk shown in this paper as they project the likely impact of the merger. Originality/value – This paper addresses an aspect of bank mergers that has not been addressed in the literature, the impact of mergers on credit risk. The results are likely to be useful to investors, financial analysts and regulators.
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Siarka, Pawel. "Global Portfolio Credit Risk Management: The US Banks Post-Crisis Challenge." Mathematics 9, no. 5 (March 6, 2021): 562. http://dx.doi.org/10.3390/math9050562.
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This paper addresses the problem of modeling credit risk for multi-product and global loan portfolios. The authors presented an improved version of the Basel Committee’s one-factor model for capital requirements calculation. They examined whether latent market factors corresponding to distinct portfolios are always highly correlated within the global portfolio and how this correlation impacts total losses distribution function. Historical losses of top-tier banks (JPMorgan Chace, Bank of America, Citigroup, Wells Fargo, US Bancorp) were analyzed. Furthermore, the estimation of the correlations between latent market factors was conducted, and its impact on the total loss distribution function was assessed. The research was performed based on consolidated financial statements for holding companies - FR Y-9C reports provided by the Federal Reserve Bank of Chicago. To verify the improved model, the authors analyzed two distinct loan portfolios for each bank, i.e., credit cards and commercial and industrial loans. They showed that the correlation between latent market factors could be significantly lower than one and disregarding this conclusion may lead to overestimating total unexpected losses. Hence, capital requirements calculated according to the IRB (Internal Ratings Based Approach) formula as a sum of individual VaR999 estimates may be biased. According to this finding, the enhanced one-factor model seems to be more accurate while calculating unexpected total loss for global portfolios. The authors proved that the active credit risk management process aiming to lower market factors’ correlation results in less volatile total losses. Therefore, financial institutions could be more resistant to macroeconomic downturns.
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Atahau, Apriani Dorkas Rambu, and Tom Cronje. "Does size affect loan portfolio structure and performance of domestic-owned banks in Indonesia?" Corporate Ownership and Control 13, no. 1 (2015): 389–400. http://dx.doi.org/10.22495/cocv13i1c3p7.
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Domestic-owned banks (DBs) represent almost 40% of the overall number of banks in Indonesia. The objective of this study is to determine whether small and large Indonesian DBs differ in terms of their loan portfolio structures and performance. No previous studies addressed this issue. The study is based on 9 year loan portfolio structure and performance data of 69 large and 346 small Indonesian DBs. Descriptive statistics, univariate statistics and panel data regression are applied. The findings from univariate statistics show that the loan portfolio structures and returns of small and large DBs differ significantly. However, panel data regression shows that only the loan portfolio return-risk relationship of small and large DBs differs significantly.
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Chun, So Yeon, and Miguel A. Lejeune. "Risk-Based Loan Pricing: Portfolio Optimization Approach with Marginal Risk Contribution." Management Science 66, no. 8 (August 2020): 3735–53. http://dx.doi.org/10.1287/mnsc.2019.3378.
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We consider a lender (bank) that determines the optimal loan price (interest rate) to offer to prospective borrowers under uncertain borrower response and default risk. A borrower may or may not accept the loan at the price offered, and both the principal loaned and the interest income become uncertain because of the risk of default. We present a risk-based loan pricing optimization framework that explicitly takes into account the marginal risk contribution, the portfolio risk, and a borrower’s acceptance probability. Marginal risk assesses the incremental risk contribution of a prospective loan to the bank’s overall portfolio risk by capturing the dependencies between the prospective loan and the existing portfolio and is evaluated with respect to the value-at-risk and conditional value-at-risk measures. We examine the properties and computational challenges of the formulations. We design a reformulation method based on the concavifiability concept to transform the nonlinear objective functions and to derive equivalent mixed-integer nonlinear reformulations with convex continuous relaxations. We also extend the approach to multiloan pricing problems, which feature explicit loan selection decisions in addition to pricing decisions. We derive formulations with multiple loans that take the form of mixed-integer nonlinear problems with nonconvex continuous relaxations and develop a computationally efficient algorithmic method. We provide numerical evidence demonstrating the value of the proposed framework, test the computational tractability, and discuss managerial implications. This paper was accepted by Chung Piaw Teo, optimization.
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Lin, Jyh-Horng, and Min-Li Yi. "Loan Portfolio Swaps and Optimal Lending." Review of Quantitative Finance and Accounting 24, no. 2 (March 2005): 177–98. http://dx.doi.org/10.1007/s11156-005-6336-z.
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Agasha, Ester, Nixon Kamukama, and Arthur Sserwanga. "The mediating role of cost of capital in the relationship between capital structure and loan portfolio quality." African Journal of Economic and Management Studies 13, no. 1 (November 15, 2021): 49–61. http://dx.doi.org/10.1108/ajems-02-2021-0084.
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PurposeThe purpose of this paper is to establish the mediating role of cost of capital in the relationship between capital structure and loan portfolio quality in Uganda's microfinance institutions (MFIs).Design/methodology/approachA cross-sectional research design was adopted to collect data and partial least squares structural equation modelling was used to test the study hypotheses.FindingsCost of capital partially mediates the relationship between capital structure and loan portfolio quality. Hence, cost of capital acts as a conduit through which capital structure affects loan portfolio quality.Research limitations/implicationsCost of capital was generalized as financial and administrative costs. The impact of costs like dividend pay-outs, interest rates and/or loan covenants on loan portfolio quality could be investigated individually.Practical implicationsMFIs should be vigilant about loan recovery by using strategies like credit rationing to ensure timely repayments.Originality/valueThe study contributes to the ongoing academic debate by identifying the significant indirect role of cost of capital in explaining loan portfolio quality.
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Prokopowicz, Dariusz. "THE IMPLEMENTATION OF AN INTEGRATED CREDIT RISK MANAGEMENT IN OPERATING IN POLAND COMMERCIAL BANKS." International Journal of New Economics and Social Sciences 2, no. 2 (December 30, 2015): 83–95. http://dx.doi.org/10.5604/01.3001.0010.3866.
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Since the late 90-th the value of an integrated credit risk management in commercial banks operating in Poland has become very actual. In classical terms, the integrated risk management is the identification and valuation of certain categories of bank risks associated with their activities. The using of modern information systems helpes to improve the integration of the various business segments in the banks and develope a model for risk management portfolio. The implementation of integrated risk management in relation to the loan portfolio improved process control assets of banks. Thus, a comprehensive risk management in terms of loan portfolio significantly adds risk analysis model, each credit transaction.
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Edmister, Robert O., and Suresh C. Srivastava. "Loan Portfolio Composition And Management Control Of Bank Risk: An Empirical Investigation." Journal of Applied Business Research (JABR) 9, no. 1 (October 2, 2011): 119. http://dx.doi.org/10.19030/jabr.v9i1.6103.
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The extent of managerial control over loan default risk is a significant policy issue for commercial banks and the public agencies which regulate them. The responsibility of bank management and the rationale for government regulation and deposit insurance rest in large measure on the fundamental issue of whether loan loss variances (over time and across banks) ensue from managerial decisions or macroeconomic conditions. Our time series models of large banks show systematic, bank dependent loss rates over time, the signs of the coefficients confirm a risk reinforcing rather than a risk adjusting management culture. Our cross sectional regressions reveal significant relationships between individual and group (all sample bank) loan losses for commercial and c consumer types of loans, indicating that significant unpredictable macroeconomic forces exist. Thus, we identify risks arising from macroeconomic conditions appropriate for government insurance and risks ensuing from managerial decisions appropriate free market discipline.
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Giulioni, Gianfranco. "Policy interest rate, loan portfolio management and bank liquidity." North American Journal of Economics and Finance 31 (January 2015): 52–74. http://dx.doi.org/10.1016/j.najef.2014.10.008.
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Liu, Chang, Haoming Shi, Yujun Cai, Shu Shen, and Dongtao Lin. "A NEW PRICING APPROACH FOR SME LOANS ISSUED BY COMMERCIAL BANKS BASED ON CREDIT SCORE MAPPING AND ARCHIMEDEAN COPULA SIMULATION." Journal of Business Economics and Management 20, no. 4 (May 13, 2019): 618–32. http://dx.doi.org/10.3846/jbem.2019.9854.
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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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Atahau, Apriani Dorkas Rambu, and Tom Cronje. "Loan portfolio structure and performance of government-owned banks in Indonesia: Does size matter?" Corporate Ownership and Control 11, no. 4 (2014): 379–90. http://dx.doi.org/10.22495/cocv11i4c4p1.
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Government-owned banks represent the smallest number of banks in Indonesia (25% of all banks) but have a dominant market share of almost 50% in the loan market. Studies previous to this one do not address the effect of size differences on the loan portfolio structures and performance of such banks. The objective of this study is to add to the literature in this area by determining whether small and large Indonesian government-owned banks differ in terms of their loan portfolio structures and performance. The study covers the 2003 to 2011 period. Descriptive statistics, univariate statistics and generalized least squares estimation are applied. The findings show that the loan portfolio structures and returns of small and large government-owned banks differ significantly.
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Mačerinskienė, Irena, and Laura Ivaškevičiūtė. "THE EVALUATION MODEL OF A COMMERCIAL BANK LOAN PORTFOLIO." Journal of Business Economics and Management 9, no. 4 (December 31, 2008): 269–77. http://dx.doi.org/10.3846/1611-1699.2008.9.269-277.
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As in other countries where the traditional banking is dominating, the major part of banks’ assets and loan interest income makes a significant share of banks’ income. Inappropriate loan portfolio evaluation might have negative impact on a commercial bank's performance, the overall banking system, and the economic growth of the country. It is not enough for a bank to have a precise strategy, high lending culture, and observance of general principles to ensure the further growth of profitable loans. It is necessary to apply various evaluation methods of historical and present data, of ratios and factors enabling to implement coherent and comprehensive loan portfolio evaluation, and to encompass different factors as far as possible. Due to a complex business environment and intense competition between banks, it is not enough to evaluate a commercial bank loan portfolio only through the aspect of credit risk, i.e. loss probability level aspect, as is suggested by the scientists. As to every business subject striving for a successful performance and further development, it is essential for a bank to earn profit by financing the other subjects, and to establish the level of assets liquidity.
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Kucukkocaoglu, Guray, and M. Ayhan Altintas. "Using non-performing loan ratios as default rates in the estimation of credit losses and macroeconomic credit risk stress testing: A case from Turkey." Risk Governance and Control: Financial Markets and Institutions 6, no. 1 (2016): 52–63. http://dx.doi.org/10.22495/rgcv6i1art6.
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In this study, inspired by the Credit Portfolio View approach, we intend to develop an econometric credit risk model to estimate credit loss distributions of Turkish Banking System under baseline and stress macro scenarios, by substituting default rates with non-performing loan (NPL) ratios. Since customer number based historical default rates are not available for the whole Turkish banking system’s credit portfolio, we used NPL ratios as dependent variable instead of default rates, a common practice for many countries where historical default rates are not available. Although, there are many problems in using NPL ratios as default rates such as underestimating portfolio losses as a result of totally non-homogeneous total credit portfolios and transferring non-performing loans to asset management companies from banks’ balance sheets, our aim is to underline and limit some ignored problems using accounting based NPL ratios as default rates in macroeconomic credit risk modeling. Developed models confirm the strong statistical relationship between systematic component of credit risk and macroeconomic variables in Turkey. Stress test results also are compatible with the past experiences.
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Van der Maas, Paul. "Active loan portfolio management through the use of credit derivatives." Balance Sheet 9, no. 1 (March 2001): 47–52. http://dx.doi.org/10.1108/09657960110695286.
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Festić, Mejra, Sebastijan Repina, and Alenka Kavkler. "THE OVERHEATING OF FIVE EU NEW MEMBER STATES AND CYCLICALITY OF SYSTEMIC RISK IN THE BANKING SECTOR." Journal of Business Economics and Management 10, no. 3 (September 30, 2009): 219–32. http://dx.doi.org/10.3846/1611-1699.2009.10.219-232.
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Rapid credit growth has been one of the most pervasive developments in recent years in Central and Eastern Europe. We tested for the significance of macroeconomic and banking sector variables that condition non‐performing loan ratios and the hypothesis of procyclicality between economic activity and improving banking‐sector results in the Baltic States, Bulgaria and Romania. The theory of procyclicality between economic activity and the non‐performing loan ratio was proven. The increased economic activity improved the loan portfolio quality of the banking sector, as indicated by a lower NPL ratio. Due to a high share of loans denominated in a foreign currency and the fact of productivity gains in the tradable sector, the appreciation of the real exchange rate contributed to an improvement in loan portfolio quality. The procyclicality of banking sector performance and high economic activities growth could be a signal of an economy overheating and therefore a slowdown in economic activity is likely to accelerate the growth of the non‐performing loan ratio in the Baltic States, Bulgaria and Romania.
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Brester, Gary W., and Myles J. Watts. "The Basel accords, capital reserves, and agricultural lending." Agricultural Finance Review 79, no. 1 (February 4, 2019): 27–47. http://dx.doi.org/10.1108/afr-04-2017-0025.
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Purpose The safety and soundness of financial institutions has become a leading worldwide issue because of the recent global financial crisis. Historically, financial crises have occurred approximately every 20 years. The worst financial crisis in the last 75 years occurred in 2008–2009. US regulatory efforts with respect to capital reserve requirements are likely to have several unintended consequences for the agricultural lending sector—especially for smaller, less-diversified (and often, rural agricultural) lenders. The paper discusses these issues. Design/methodology/approach Simulation models and value-at-risk (VaR) criteria are used to evaluate the impact of capital reserve requirements on lending return on equity. In addition, simulations are used to calculate the effects of loan numbers and portfolio diversification on capital reserve requirements. Findings This paper illustrates that increasing capital reserve requirements reduces lending return on equity. Furthermore, increases in the number of loans and portfolio diversification reduce capital reserve requirements. Research limitations/implications The simulation methods are a simplification of complex lending practices and VaR calculations. Lenders use these and other procedures for managing capital reserves than those modeled in this paper. Practical implications Smaller lending institutions will be pressured to increase loan sector diversification. In addition, traditional agricultural lenders will likely be under increased pressure to diversify portfolios. Because agricultural loan losses have relatively low correlations with other sectors, traditional agricultural lenders can expect increased competition for agricultural loans from non-traditional agricultural lenders. Originality/value This paper is novel in that the authors illustrate how lender capital requirements change in response to loan payment correlations both within and across lending sectors.
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BROLL, UDO, B. MICHAEL GILROY, and ELMAR LUKAS. "MANAGING CREDIT RISK WITH CREDIT DERIVATIVES." Annals of Financial Economics 03, no. 01 (June 2007): 0750004. http://dx.doi.org/10.1142/s2010495207500042.
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Credit risk is one of the most important forms of risk faced by national and international banks as financial intermediaries. Managing this kind of risk through selecting and monitoring corporate and sovereign borrowers and through creating a diversified loan portfolio has always been one of the predominant challenges in bank management. The aim of our study is to examine how a risky loan portfolio affects optimal bank behavior in the loan and deposit markets, when derivatives to hedge credit risk are available. In a stochastic continuous-time framework a hedging model is developed where the bank management can use derivatives to hedge credit risk. Optimal loan, deposit and hedging strategies are then studied. It is shown that the magnitude and the direction of hedging are determined by the bank manager's preferences, the corresponding risk premium and the variance of the loan rate and its hedging instrument respectively.
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Yanenkova, Iryna, Yuliia Nehoda, Svetlana Drobyazko, Andrii Zavhorodnii, and Lyudmyla Berezovska. "Modeling of Bank Credit Risk Management Using the Cost Risk Model." Journal of Risk and Financial Management 14, no. 5 (May 7, 2021): 211. http://dx.doi.org/10.3390/jrfm14050211.
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This article deals with the issue of managing bank credit risk using a cost risk model. Modeling of bank credit risk management was proposed based on neural-cell technologies, which expand the possibilities of modeling complex objects and processes and provide high reliability of credit risk determination. The purpose of the article is to improve and develop methodical support and practical recommendations for reducing the level of risk based on the value-at-risk (VaR) methodology and its subsequent combination with methods of fuzzy programming and symbiotic methodical support. The model makes it possible to create decision support subsystems for nonperforming loan management based on the neuro-fuzzy approach. For this paper, economic and mathematical tools (based on the VaR methodology) were used, which made it possible to analyze and forecast the dynamics of overdue payment; assess the quality of the credit portfolio of the bank; determine possible trends in bank development. A scientific and practical approach is taken to assess and forecast the degree of credit problematicity by qualitative criteria using a mathematical model based on a fuzzy technology, which can forecast the increased risk of loan default at an early stage in the process of monitoring the loan portfolio and model forecasting changes in the degree of credit problematicity on change of indicators. A methodology is proposed for the analysis and forecasting of indicators of troubled loan debt, which should be implemented as software and included in the decision support system during the process of monitoring the risk of the bank’s credit portfolio.
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Twesige, Daniel, Alexis Uwamahoro, Philippe Ndikubwimana, Faustin Gasheja, Isaie Kadhafi Misago, and Uzziel Hategikimana. "Causes of loan defaults within Microfinance institutions: Learning from micro and small business owners in Rwanda: A case of MSEs in Kigali." Rwanda Journal of Social Sciences, Humanities and Business 2, no. 1 (April 4, 2021): 27–49. http://dx.doi.org/10.4314/rjsshb.v2i1.3.
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The study analyse the factors that causes loan defaults within Microfinance institutions learning from the perception of entrepreneurs in Rwanda. Explanatory research design was used. Data was collected from primary and secondary sources using questionnaire and documentation. The study population included microfinance institutions within Kigali. The target population included MSEs that are classified within a portfolio of nonperforming loans. Structural Equation Modeling (SEM) was used to analyse the correlation between the study variables. The findings from the survey showed that loan delay, loan shortage, loan deviation, interest rate, improper management, business environment have a significant impact on nonperformance. The researcher recommended that entrepreneurs should be trained on financial discipline and how to manage the loan finance
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Magali, Joseph John. "Effectiveness of Loan Portfolio Management in Rural SACCOS: Evidence from Tanzania." Business and Economic Research 4, no. 1 (May 6, 2014): 301. http://dx.doi.org/10.5296/ber.v4i1.5590.
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Rad, Alexander. "Risk management–control system interplay: case studies of two banks." Journal of Accounting & Organizational Change 12, no. 4 (November 7, 2016): 522–46. http://dx.doi.org/10.1108/jaoc-08-2014-0042.
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Purpose This paper aims to explore the interplay between risk management and control systems in banks, specifically investigating the managerial intentions underlying the design of management control systems. Design/methodology/approach This study is based on 31 interviews with personnel of two banks in a European country. Findings The main finding is that belief systems drive the interplay between risk management and control systems in the studied banks. In several instances, belief systems and boundary systems were operating complementarily. Cross-case analyses of the two banks demonstrate that risk management (i.e. the Basel II Accord) replaced established operating procedures for loan origination and portfolio monitoring at the first bank, whereas senior managers suppressed Basel II to maintain established loan origination and portfolio monitoring procedures at the second one. Originality/value This is one of very few studies investigating the interplay between risk management and control systems in banks.
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Rutkauskas, Aleksandras Vytautas, and Gitana Dudzevičiūte. "FOREIGN CAPITAL AND CREDIT MARKET DEVELOPMENT: THE CASE OF LITHUANIA." Journal of Business Economics and Management 6, no. 4 (December 31, 2005): 219–24. http://dx.doi.org/10.3846/16111699.2005.9636111.
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There have been wide-ranging discussions on whether the investments of foreign banks into the banking sector of the Central and Eastern Europe countries (CEE) lead to greater competition and increase of the loan portfolio of the banks. Several empirical works have shown that a high proportion of foreign capital in the banking sector of CEE countries has generally positive effects on the quality and amount of loan portfolio of the banking sector, but there may also be some adverse effects. Lithuania has an open economy and the credit market is open to international banking competition. The loan portfolio of the banks in Lithuania was growing very rapidly during the last year. A drop in the loan interest rates was significant and banks offered credits under favourable conditions. At the same time, the Lithuanian banking sector is largely foreign‐owned. Foreign investors currently own approx. 87 % of the share capital of banks in Lithuania. The aim of this paper is to investigate the link between the Lithuanian credit market development and the entry of foreign banks
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Zhao, Fang, and James Moser. "Bank Lending and Interest- Rate Derivatives." International Journal of Financial Research 8, no. 4 (September 14, 2017): 23. http://dx.doi.org/10.5430/ijfr.v8n4p23.
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Using data that cover a full business cycle, this paper documents a direct relationship between interest-rate derivative usage by U.S. banks and growth in their commercial and industrial (C&I) loan portfolios. This positive association holds for interest-rate options contracts, forward contracts, and futures contracts. This result is consistent with the implication of Diamond’s model (1984) that predicts that a bank’s use of derivatives permits better management of systematic risk exposure, thereby lowering the cost of delegated monitoring, and generates net benefits of intermediation services. The paper’s sample consists of all FDIC-insured commercial banks between 1996 and 2004 having total assets greater than $300 million and having a portfolio of C&I loans. The main results remain after a robustness check.
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Ghosh, Amit. "Determinants of bank loan charge-off rates: evidence from the USA." Journal of Financial Regulation and Compliance 26, no. 4 (November 12, 2018): 526–42. http://dx.doi.org/10.1108/jfrc-02-2018-0021.
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Purpose Using data on 5,176 commercial banks in the USA for the period 1999Q1-2016Q3, the present study aims to examine the underlying determinants of loan charge-off rates. Design/methodology/approach The study uses panel data fixed-effects estimation methodology. Findings Greater regulatory capital, more diversification, higher profits and cost efficiency reduce charge-off rates. On the contrary, a higher share of loans in banks asset portfolio and a higher share of real estate loans have a detrimental impact on loan performance. Moreover, strong US macroeconomic fundamentals reduce loan charge-offs. Finally, real estate loan charge-offs are most sensitive to balance sheet conditions. Practical Implications Consistent with Basel-III regulation, the results underscore the importance of banks to remain well capitalized. Greater tier-1 capital refrains banks from risky lending practices, thereby improving their loan performance. It is also important that banks maintain a diversified income stream and earn higher profitability. Finally, managerial inefficiencies leading to higher non-interest expense needs to be reduced to improve loan performance. Originality/value Although a burgeoning body of literature has examined the underlying factors that affect poor quality loans in both the USA and elsewhere, fewer studies have focused on loan performance. From the perspective of banking regulation and fostering banking stability, determining the factors that affect loan charge-offs is extremely crucial to identify channels through which loan performance is either worsened or improved. If we understand poor loan performance, we can use that knowledge to anticipate the possibility of bankruptcy.
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Erokhin, V. V., and Yu A. Kavin. "EVALUATION OF A CREDIT CUSTOMER IN A CREDIT ORGANIZATION." Juvenis Scientia, no. 3 (2019): 13–21. http://dx.doi.org/10.32415/jscientia.2019.03.03.
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The article proposes a model of an effective credit management system for a credit institution. The goal is to determine the impact of selected loan management processes on the effectiveness of the entire credit management system. This is done through hypothesis testing, using the usual least squares method. Another problem is the assignment to individual clients of their real strategic importance in the credit portfolio of a credit institution in order to ensure the optimal allocation of financial resources. For this purpose, two different methods are used, namely: analysis of the client loan portfolio and the method of estimation using logistic regression. A model of an effective credit management system in a credit institution has been proposed. The factors affecting the credit management process and the effectiveness of the entire credit management system are identified. The strategic values of the credited clients for the credit institution are determined, which allows optimizing the distribution of the financial resources of the credit institution and the entire credit management system.
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Serwadda, Isah. "Impact of Credit Risk Management Systems on the Financial Performance of Commercial Banks in Uganda." Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis 66, no. 6 (2018): 1627–35. http://dx.doi.org/10.11118/actaun201866061627.
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The paper is set to analyse the impact of credit risk management on the financial performance of commercial banks in Uganda for a period of 2006–2015 using panel data for a sample of 20 commercial banks. The study employs return on assets as a dependent variable and non‑performing loans, growth in interest earnings and loan loss provisions to total loans as credit risk measures. Secondary data is sourced from the Bank scope database, African development bank and the central bank of Uganda. The study employs descriptive statistics, regressions and correlation analysis. Regression models are to estimate the magnitude of significance of credit risk management on the performance of commercial banks in Uganda. The study revealed that credit risk management impacts on the performance of Ugandan commercial banks. The results portrayed that banks’ performance was inversely influenced by non‑performing loans which may expose them to large magnitudes of illiquidity and financial crisis. Thus given such results, the researcher recommends that banks need to enhance their credit risk management techniques not only to earn more profits but also to maintain a qualitative asset portfolio and attention be given to non‑performing loans, loan loss provision to total loans and growth in interest earnings that were found to be significant. Banks need to design appropriate credit policies that must handle all necessary conditions before advancing credit to their customers and also develop strong credit administration committees and teams that must conduct appropriate and sound loan appraisal evaluations and which must also monitor the loans throughout the required processes right from extending a loan to a customer up to the completion of loan repayments so as to mitigate credit risks.
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Tishchenko, Alexander A. "Mass evaluation of the collateral portfolio: problems and solutions." Vestnik of Samara State University of Economics 8, no. 202 (August 2021): 78–87. http://dx.doi.org/10.46554/1993-0453-2021-8-202-78-87.
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A timely understanding of the collateral security level of the loan portfolio can warn against the risks of the capital adequacy loss of a credit institution. The specifics of managing the value of a collateral portfolio from the position of updating the value of its elements (collateral items) are studied. The possibility of applying mass valuation methods in relation to the collateral portfolio of a commercial bank is analyzed. An approach to the mass assessment of the value of the collateral portfolio is proposed and an algorithm for its implementation in the value management system of the collateral portfolio of a commercial bank is presented.
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Porretta, Pasqualina, Aldo Letizia, and Fabrizio Santoboni. "Credit risk management in bank: Impacts of IFRS 9 and Basel 3." Risk Governance and Control: Financial Markets and Institutions 10, no. 2 (2020): 29–44. http://dx.doi.org/10.22495/rgcv10i2p3.
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The expected loss approach (ECL) defined by IFRS 9 replaced the old incurred loss approach (IAS 39) in the international accounting standard setter. In Europe, the IFRS 9 are accompanied by new regulatory frameworks (BCBS), opinion, technical standards (EBA) which do not always provide the same methodological and operational implications of the accounting standard setter. Many aspects of IFRS 9 have been studied, but this paper analyzes its interdependencies and overlaps with the credit risk framework for financial intermediaries (also Basel 3). Using a case study, the purpose of this paper is to investigate the ECL, its main impacts on coverage ratio of a loan’s portfolio. The main findings are: usually, the rules laid down for Stage 1 of IFRS 9 do not reduce the excess coverage produced on a portfolio in bonis; in the presence of impaired loans IAS 39 generates a lack of funds; the lifetime ECL (Stage 2 of IFRS 9) imposes excess of provisions because it does not consider the effect of coverage produced by expected premiums; for loan portfolios with short repayment times, the excess of provisions produced by IFRS 9 compensates the lack of coverage of the capital requirement. From the academic research perspective, this paper contributes to the literature on ECL model in several ways. First, it adds knowledge to the research on the relationship between Credit Risk Management framework and accounting standard IFRS 9. Second, it also links our findings related to ECL approach with potential implications for the financial sector, policymakers and regulators.
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Sathish, G. "A STUDY ON LOAN PORTFOLIO MANAGEMENT OF URBAN COOPERATIVE BANKS IN TAMIL NADU." International Journal of Research -GRANTHAALAYAH 4, no. 6(SE) (June 30, 2016): 73–78. http://dx.doi.org/10.29121/granthaalayah.v4.i6(se).2016.2665.
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Cooperative Banking System has two broad systems i.e. urban and rural cooperatives, forms an integral part of the India’s Financial System. Urban Cooperative Banks play an important role as financial intermediaries in catering to the credit requirements of both priority sector and weaker section of the communities. As on March 2015 there were 120 UCBs functioning all over Tamil Nadu and the majority is Non-Schedule UCBs. These banks are traditionally centered on communities, localities and work place groups, and they lend to agriculture and non-agriculture purpose and particularly to small farmers, small traders, business man, artisans, factory workers, salaried people and persons of small means. This paper highlights the per-stage and post-stage sanction of loan process of credit in Tamil Nadu Urban Cooperative Banks. Further, the paper makes an assessment of the extent to which Urban Cooperative Banks were following loan portfolio management and identifies the focus area of improvement in near future.
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Amaral, Gustavo Henrique de Oliveira, and Robert Aldo Iquiapaza. "Determinantes de Inadimplência e de Recuperação de Crédito em um Banco de Desenvolvimento." BASE - Revista de Administração e Contabilidade da Unisinos 17, no. 3 (September 29, 2020): 483–519. http://dx.doi.org/10.4013/base.2020.173.05.
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Considering the latest financial crises and because of the increasingly importance of credit risk management to economic actors and academics, this research aims to identify the conditioning factors of non-performing loans and credit recovery of a development bank portfolio. We analyzed data of 20.241 loans granted to micro and small enterprises between November 2009 and November 2014. To achieve the research goals, non-performing loan and loan recovery models were estimated by logistic regression. The results point out the significant effects on determining non-performing loans and/or credit recovery of (i) individual characteristics, such as firm’s age, (ii) loan characteristics, like the financial product and the installment payment period, and (iii) lending relationship, such as the number of years of relationship with the development bank. Contrary to the arguments of part of the literature, the results do not suggest any reverse relation between non-performing loans and credit recovery explanatory variables, which could enhance the loss from credit risk misspecification.
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Gallagher, Richard L. "Modeling agricultural loan portfolio risk in a stochastic environment." Agricultural Finance Review 62, no. 1 (May 5, 2002): 25–39. http://dx.doi.org/10.1108/00214860280001127.
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Collier, Benjamin, Ani L. Katchova, and Jerry R. Skees. "Loan portfolio performance and El Niño, an intervention analysis." Agricultural Finance Review 71, no. 1 (May 10, 2011): 98–119. http://dx.doi.org/10.1108/00021461111128183.
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Engelmann, Bernd, and Ha Pham. "Measuring the Performance of Bank Loans under Basel II/III and IFRS 9/CECL." Risks 8, no. 3 (September 2, 2020): 93. http://dx.doi.org/10.3390/risks8030093.
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In the last two decades, both internal and external risk management of banks have undergone significant developments. Banking supervision encourages banks to use a risk-based approach for computing minimum regulatory capital. Accounting rules have been tightened requiring more timely loss reserves for impaired loans. In this article, we propose a comprehensive scheme for calculating the profitability of a loan that could be used both for setting risk-based interest rates when originating a loan and for accurately determining the profitability of existing clients. The scheme utilizes the credit models developed for regulatory purposes and takes the impact of regulation on loan performance into account. We show that accounting loan loss provisions cannot be applied in a performance measurement scheme because they do not reflect the true economic loss. In addition, we demonstrate that it is crucial to measure loan performance over the full life cycle of a loan. Restricting profitability measurement to a time horizon of one year as often observed in practice could be misleading. Although our focus is on profitability measurement, the framework could be applied in a wider context, i.e., for macroeconomic stress tests, bank balance sheet projections, capital management, or evaluating the impact of securitizing parts of a bank’s loan portfolio.
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GOOBERMAN, LEON, and TREVOR BOYNS. "Public Venture Capital in a Regional Economy: The Welsh Development Agency, 1976–1994." Enterprise & Society 20, no. 4 (July 12, 2019): 978–1006. http://dx.doi.org/10.1017/eso.2019.15.
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Between 1976 and 1994 the UK Government’s Welsh Development Agency made 2,304 loan and equity investments totaling £117.8 million. The agency aimed to address difficulties faced by firms in obtaining finance, and such intervention was justified by the market failure and spillover hypotheses. This article assesses the agency’s investment activities against both justifications. It finds that while some investments succeeded, the portfolio’s financial performance was poor, and the agency did not address widespread market failure. Evidence of spillover returns existed, but cannot be quantified accurately across the portfolio. The article argues that the agency’s two venture capital objectives, to assemble a profitable portfolio and to grow employment levels through boosting commercial activity, were incompatible within a poorly performing regional economy. Although spillovers can justify public venture capital in such economies, expectations as to financial performance should be realistic in the absence of an ecosystem that facilitates demand for capital.
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KHUTOROVA, Natal'ya A., and Nikita A. NAZIN. "Analyzing the efficiency of portfolio strategies based on the dividend yield concept: Evidence from the Russian stock market." Financial Analytics: Science and Experience 14, no. 3 (August 16, 2021): 323–46. http://dx.doi.org/10.24891/fa.14.3.323.
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Subject. The article focuses on the formation and management of the securities portfolio. In developed economies, various strategies are used to manage portfolios. The tendencies permeate the practice of portfolio managers and in the domestic market. Objectives. We analyze the efficiency of portfolio management strategies based on the dividend yield concept in order to find the most appropriate one for the Russian market for mid-term investment. Methods. The study is based on general methods of logic, comparative and statistical analysis, graphical and indicative comparative analysis. Results. Having tested strategies based on the dividend yield concept, we suggested using an improved mid-term strategy, which may suit many investors, including institutional ones. The article presents our suggestions on the improvement of a strategy for creating and managing a securities portfolio in the Russian stock market, which is based on the Dogs-of-the-Do principle. Conclusions and Relevance. Drawing upon the dividend yield concept, the proposed strategy ensures the average yield exceeding those of DOW 5 and DOW 10 strategies, bank deposit and investment in federal loan bonds. However, it is inferior to IMOEX and MOEXBS due to the lose of the portfolio balance once a year. Securities within the strategy make up ETF to lure more investors. The inclusion of FXUS increased the average annual yield by 2.45 percent. The addition of FXMM significantly reduces foreign currency risks. To optimize the strategy, there should be REPO with the central counterpart and CCP-cleared REPO, which raises its yield through arbitrage transactions.
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Mutesi, Sarah. "Contribution of Loan Portfolio Management on Financial Performance of Commercial Banks in Rwanda." International Journal of Scientific and Research Publications (IJSRP) 10, no. 06 (June 12, 2020): 356–65. http://dx.doi.org/10.29322/ijsrp.10.06.2020.p10242.
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de la Fuente-Cabrero, Concepción, Mónica de Castro-Pardo, Rosa Santero-Sánchez, and Pilar Laguna-Sánchez. "The Role of Mutual Guarantee Institutions in the Financial Sustainability of New Family-Owned Small Businesses." Sustainability 11, no. 22 (November 14, 2019): 6409. http://dx.doi.org/10.3390/su11226409.
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Small family-owned companies are the most common type of European business structure and are characterised by their orientation to long-term goals. Therefore, they can play an important role in the launching of businesses related to sustainable growth. However, access to finance is difficult for start-ups. Mutual Guarantee Institutions (MGIs) mitigate this problem by facilitating long-term guaranteed loans, but they must assume responsibility for default losses. This paper analyses, as of the end of 2018, the loan default of the portfolio of guarantees formalised by Spanish MGIs with new companies between 2003 and 2012, a period including both economic growth and recession. The objective is to identify the annual evolution and the average global cost of default, as well as the differences in said portfolios according to the purpose of the loan, company size and economic activity. The analysis was developed while considering two scenarios: one determinist, using a ratio method and another stochastic, using an analysis of variance. We found differences in the distribution of defaults for the variables company size and sector of activity. The findings provide relevant information for managers and Public Administrations to improve the distribution of guarantees between Spanish MGIs and public institutions, and their coverage of Small and Medium Enterprise (SME) loan defaults.
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Barasa, Kizito Wekesa, and Dr Reuben Njuguna. "EFFECT OF INITIAL LOAN APPRAISAL ON THE NON-PERFORMING LOANS IN AGRICULTURAL FINANCE INSTITUTIONS." Journal of Business and Strategic Management 2, no. 4 (July 15, 2017): 1. http://dx.doi.org/10.47941/jbsm.177.
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Purpose: In the recent past Agricultural Finance Corporation has experienced huge non-performing loan portfolio. This has been to the tune of 5 billion comprising of 2500 clients. The purpose of this study was therefore to establish the contributors of non-performing loan to agricultural finance institution. The study sought to determine the effect of initial loan appraisal, the extent to which loanees’ level of financial management skill affect NPL, and effect of credit policies and loan recovery strategies on nonperformance of loans at AFC.Methodology: The study adopted a case study research design. Data was collected by using questionnaires administered by the researcher. The research targeted a single unit AFC. A total of 4 heads of department from credit, debt collection and recovery, Finance and Audit were targeted to respond to the questionnaire. The selection of the 4 heads was based on purposive sampling method. In addition 36 credit officers and 16 branch managers were selected using stratified and random sampling method as respondent to the study. This gave a total of 54 respondents. The data was analyzed using descriptive statistics utilizing SPSS.Results: The research findings showed that there was a significant positive relationship between loan appraisal and ratio of non-performing loan to total advances. This implies that as the process of loan appraisal is improved and done properly, the loan performance also improves similarly. Therefore, if initial loan appraisal is not done properly it will lead to more non-performing loanUnique contribution to theory, practice and policy: The study recommends that AFC top management should create a working relationship with other lending institutions to ensure that farmers do not abuse the well-kept farming financial records to acquire more loans from the other financial institutions whose recovery could create huge NPL on the part of AFC loans advanced to them.
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Gottschalk, Sylvia. "Asset correlation, portfolio diversification and regulatory capital in the Basel Capital Accord." Risk Governance and Control: Financial Markets and Institutions 1, no. 3 (2011): 31–39. http://dx.doi.org/10.22495/rgcv1i3art3.
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In this paper, we analyze the properties of the KMV model of credit portfolio loss. This theoretical model constitutes the cornerstone of Basel II’s Internal Ratings Based(IRB) approach to regulatory capital. Our results show that this model tends to overestimate the probability of portfolio loss when the probability of default of a single firm and the firms’ asset correlations are low. On the contrary, probabilities of portfolio loss are underestimated when the probability of default of a single firm and asset correlations are high. Moreover, the relationship between asset correlation and probability of loan portfolio loss is only consistent at very high quantiles of the portfolio loss distribution. These are precisely those adopted by the Basel II Capital Accord for the calculations of capital adequacy provisions. So, although the counterintuitive properties of the KMV model do not extend to Basel II, they do restrict its generality as a model of credit portfolio loss.
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Bhuiyan, Rubaiyat Ahsan, Maya Puspa, Buerhan Saiti, and Gairuzazmi Mat Ghani. "Comparative analysis between global sukuk and bond indices: value-at-risk approach." Journal of Islamic Accounting and Business Research 11, no. 6 (January 10, 2020): 1245–56. http://dx.doi.org/10.1108/jiabr-02-2018-0019.
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Purpose Sukuk is an innovative financial instrument with a flexible structure based on Islamic financial contracts, unlike a bond which is based on the structure of a loan imposed with interest. With the notion that sukuk differs considerably from the conventional bonds in terms of risks related to investment, this study aims to examine whether the sukuk market is different from conventional bond markets based on the value-at-risk (VaR) approach. Design/methodology/approach The VaR of a portfolio consists of sukuk and bond indices and is undertaken to determine whether there is any reduction in the VaR amount through the inclusion of the sukuk index in the portfolio. The analysis is undertaken based on the developed and emerging market bond and sukuk indices from January 2010 to December 2015. Findings This paper examines whether the VaR of sukuk market differs from conventional bond markets by using fundamental techniques. It was observed that the VaR amount of sukuk indices is comparatively much lower than the VaR of bond indices in all the cases. Including the sukuk index with each bond index can reduce the VaR of the portfolio by around 30 to 50 per cent for all the developed and emerging market bond indices. Research limitations/implications This research is limited to covering six years of data. Nonetheless, it is able to provide findings which are believed to be useful for the market players. Practical implications This study unveils attractive opportunities in terms of diversification benefits of sukuk indices for international fixed-income portfolios. Originality/value The VaR method is a useful risk management tool. This study uses this method to emphasise the significant reduction of risks and diversification benefits that sukuk investment could offer by including it in the investment portfolio.
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Oyetade, Damilola, Adefemi A. Obalade, and Paul-Francois Muzindutsi. "Basel capital requirements, portfolio shift and bank lending in Africa." ACRN Journal of Finance and Risk Perspectives 10, no. 1 (2021): 296–319. http://dx.doi.org/10.35944/jofrp.2021.10.1.014.
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Bank lending is a major source of income for a bank. Compliance with higher Basel capital requirements (CAR) portends serious implication for distribution of loan portfolio across different sectors. The objective of the study is to examine African banks’ responses to higher CAR in terms of portfolio shift. The study used descriptive statistics and ANOVA for panel data of African commercial banks that have implemented Basel II or III CAR for the period 2000 and 2018. Based on the results of our analysis, implementation of higher Basel CAR by African banks revealed four key findings. Firstly, our results suggest that higher Basel CAR particularly Basel III reduced total loans for South African banks. Secondly, African banks engage in portfolio shift with higher Basel levels. Thirdly, higher Basel capital increased banks' capital ratios in Africa, but some banks are still characterized by low equity. Fourthly, African banks reduce lending to high risk-weighted loans such as real estate and commercial loans except for South African banks which increased lending to commercial loans with higher Basel CAR. Lastly, this study proffers key insight into the lending behaviour of African banks with the implementation of higher Basel CAR.
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Lin, Jyh-Horng, and Chuen-Ping Chang. "Liquidity management and futures hedging under deposit insurance: An option-based analysis." Yugoslav Journal of Operations Research 14, no. 2 (2004): 209–18. http://dx.doi.org/10.2298/yjor0402209l.
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Theories on financial futures hedging are generally based on a portfolio-choice approach. This paper presents an alterative: a firm-theoretic model of bank behavior with financial futures under deposit insurance. Assuming that the bank is a certificate of deposit (CD) rate-setter and faces random CDs, expressions for the optimal futures hedge are derived under the option-based valuation. When the bank is in a bad state of the world, a decrease in the short position of the futures decreases the loan rate and increases the CD rate; an increase in the deposit insurance premium increases the loan rate and decreases the CD rate. We also show that the bank?s amount of futures increases with a lower expected futures interest rate.
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Huda, Farzana, and Tanbir Ahmed Chowdhury. "Merchant Banking Operation: A Case Study of Selected Merchant Banks in Bangladesh." Asian Journal of Finance & Accounting 9, no. 1 (February 25, 2017): 116. http://dx.doi.org/10.5296/ajfa.v9i1.10712.
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In Bangladesh the establishment of merchant bank added value to the stock market which plays a vital role in the progress of economic development. This study tried to analyze the performance of Lanka Bangla Investment Ltd., Prime Finance Capital Management Ltd., IDLC Investment Ltd. and Uttara Finance and Investment Ltd. Seven trend equations have been tested for different activities of the selected merchant banks. It is observed that the selected merchant banks were able to achieve a stable growth of investment in securities, margin loan to clients, brokerage commission, capital gain/loss from securities, portfolio management services, issue management fees, corporate advisory fees and underwriting commission during the period of 2011-2015. Among them the trend equation of investment in securities, margin loan to clients, and corporate advisory fees are positive incase of all the selected merchant banks. Square of correlation coefficient (r2) has also been tested for all trend equations. The r2 of interest income from merchant bank, portfolio management services, settlement and transaction fees and documentation fees, is more than 0.5. It indicates the prospect of merchant banks in Bangladesh is bright.