A Model of Credit Risk in the Corporate Sector Based on Bankruptcy Prediction

Bericht

We propose a method for assessing the risk of losses on bank lending to the non-financial corporate sector based on bankruptcy probability modelling. We estimate bankruptcy models for different industries and attach a risk weight to each firm's debt in a given year. The risk weight is equal to the probability of bankruptcy. By summing all risk-weighted debt in an industry, we obtain an estimate of the share of debt in bankruptcy accounts in a given year. A key feature of our model is the inclusion of economic indicators at the industry level, observed in real time, as explanatory variables together with standard financial accounting variables and real-time credit rating information. We find that historically, during 2000-2014, there is good correspondence between our estimated measure of risk-weighted debt and actual debt in bankruptcy accounts. Moreover, bank losses according to bank statistics and debt in bankruptcy accounts display a similar pattern over time in most industries.

Object Details

• ISBN: 978-82-7553-942-5
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Staff Memo ; No. 20/2016

Classification and Topics

• Classification: Wirtschaft

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hjelseth, Ida Nervik ; Raknerud, Arvid
• Event: Veröffentlichung
• (who): Norges Bank
• (where): Oslo
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/210333
• Last update: 10.03.2025, 11:43 AM CET