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**Factors that influence LGD for retail loans in financial
**

institutions

Nat´alia Cordeiro Zaniboni∗

Alcides Carlos de Ara´

ujo†

´

Alessandra de Avila

Montini‡

Abstract

The Basel regulations require attention to financial risks, in particular, credit risk.

The capital required for credit risk consists of three components, including the loss

given default (LGD). This study aimed to analyze the factors that influence the

characteristics of LGD in the European financial institutions regarding retail loans,

using the logistic regression model. The results suggest that the segment and exposure (EAD) affect the LGD. The model achieved an important result for the risk

management studies, as it correctly classified 92% of the observations of high loss

(LGD ≥ 50%).

Keywords: Basel, Loss Given Default, Logistic Regression, Credit Risk

Resumo

A regula¸c˜

ao da Basil´eia requer aten¸c˜ao para os riscos financeiros, particularmente,

o risco de cr´edito. O capital necess´ario para prote¸c˜ao do risco de cr´edito consiste

de trˆes componentes, incluindo a perda em fun¸c˜ao da inadimplˆencia (LGD). O objetivo deste estudo ´e analisar os fatores que influenciam as caracter´ısticas do LGD

em institui¸c˜

oes financeiras europ´eias considerando empr´estimos e utilizando o modelo de regrress˜

ao log´ıstica. Os resultados sugeriram que o segmento e a exposi¸c˜ao

(EAD) afetam o LGD. O modelo atingiu um resultado importante para a ´area de

gest˜ao de riscos, tendo classificado corretamente 92% das observa¸c˜oes de altas perdas (LGD ≥ 50%).

Keywords: Basil´eia, Perda em fun¸c˜ao da inadimplˆencia, Regress˜ao log´ıstica, Risco

de Cr´edito

∗

Universidade de S˜

ao Paulo - FEA/USP; contato: natyzaniboni@yahoo.com.br

Universidade de S˜

ao Paulo - FEA/USP; contato: alcides.carlos@usp.br

‡

Universidade de S˜

ao Paulo - FEA/USP; contato: amontini@usp.br

†

has as its main objective to standard the capital at risk from financial institutions. Several authors used this kind of approach to predict LGD. 2. where the regulator itself provides the value of the risk components. focused on LGD statistical models. 2001) and consists of three pillars (BIS. This capital is composed by three risk components: PD (probability of default). In order to protect these system against the instability of the risks and prevent financial institutions from being exposed to high risks. In paragraph 252. an international committee of banking regulations and supervisory practices was established in 1974. The Basel II presents the main definitions of the internal approach methodology (part 2. creating a binary responde variable. Marins. 1994). Belotti and Crook (2008) used logistic regression and obtained good results. and Neves (2008). (2012) and Leow and Mues (2012) used binary models to predict LGD and found that this kind of model has better results in predicting LGD. the committee says that banks must develop methodologies and calculate their own estimates of PD (probability of default). the study aims to analyze characteristics and the factors that most influence the risk component LGD. supervised by the local regulator. known as the “International Convergence of Capital Measurement and Capital Standards: A Revised Framework”. The Basel committee suggests two approachs for calculating this capital: the standard approach. especially for credit risk (Santos. Supervisory Review Process (Pillar 2). 3. the loss arising from opportunity costs and collection and recovery loss. starting in 2008. and uses data from several financial institutions. and focused on LGD descriptive statistics.Sixth Brazilian Conference on Statistical Modelling in Insurance and Finance 1 Introduction The risk associated with financial transactions is a widely studied subject throughout the financial system. This paper approach both subjects. the component LGD is the percentage of losses of a risk exposure at the time of default. Market discipline (Pillar 3). The first studies regarding the risk component LGD began in 1995. and internal based approach. most in Europe. According Silva. Latest research. Given the international requirements. 2004): 1. 2 . section III). with Asarnow and Edwards (1995). The Basel II. dividing the data in two groups: low LGD and high LGD. which includes principal loss. A Logistic Regression model was ajusted for the LGD data. where the bank calculates its components based on its credit risk history and exposure characteristics. its distributions and factors that influence its variability. LGD (loss given default) and EAD (exposure at default) for retail exposures. first published in 1999 and completed in 2004. The minimum capital required is the financial reserve required for financial institutions to cope with their risk exposures. Minimum Capital Requirement (Pillar 1). Loterman et al. the Basel Committee (Kapstein. considering the information available in Pilar 3 risk management reports of financial institutions. LGD (loss given default) and EAD (exposure at default).

type of loan.827 loans at an Italian medium sized commercial bank and found that the LGD of retail loans has an average of 53. Gates. the company’s capital structure. the company’s industry. Chalupka and Kopecsni (2008) defined these as Market. in a study conducted by Moody’s with 181 bank loans. LGD = 1 − 2.S. which involves some important decisions.Sixth Brazilian Conference on Statistical Modelling in Insurance and Finance 2 2. but not yet in default.1 Theoretical Framework Calculation of LGD There are a few methodologies for the calculation of LGD. and Carty (2000). It is a multivariate model developed with 1. security. bank Citibank. the Workout LGD is calculated using the cash flow resulting from the recovery period.3%. (2008) is presented in equation (1). P ayments − Costs (1) EAD Where payments are indicated by the amount recovered after the default. segment. this is the most complex calculation. who analyzed the behavior of the rate of loss during 24 years in the U. Hurt and Felsovalyi (1998) developed a study similar to that of Asarnow and Edwards (1995). This study resulted in a calculation of LGD of 32%. indicated that the average of the LGDs of secured loans is 52% and the average LGD of unsecured loans is 69%. and the exposure amount influence on LGD. using a theoretical model of asset pricing.2 Factors that influence LGD Studies on LGD models began in the 90s. resulting in an average LGD of 40%.800 securities. The Market LGD is calculated using the prices of marketable securities and loans after the default.4%. They used factors grouped into four categories: type of debt and seniority. with Asarnow and Edwards (1995). while small and medium enterprises have an average of 48. but it focuses on Latin America and covers 27 years of database. the degree of subordination of the bond and the economic situation are factors that influence on LGD. such as the definition of the recovery time. the costs are the costs of recovery and EAD is the exposure at the time of the default.. Workout and Implied Market LGD. The most commonly used approach for calculation of LGD is the Workout LGD (Silva et al. He also mentioned the distribution of two peaks of LGD data. Gupton. as they also analyzed the behavior of the rate of loss of Citibank. size of the recovery time (workout) and the 3 . the LossCalc. 2008). discounted to present value at the time of default and the Implied Market LGD is calculated using the prices of risky assets. and studied the following explanatory variables: place where the client lives. Workout LGD formula considering all losses given by Silva et al. Querci (2005) studied the behavior of 15. with the presence and quality of the security. industry indicators and macro-economic factors. Gupton and Stein (2002) documented Mooody’s model for LGD. They showed that there is a difference of the LGDs between commercial and industrial operations and structured operations (loans with greater monitoring are more structured and have greater governance). Schuermann (2004) mentioned the distribution of two peaks of LGD using data from Moody’s financial securities. According to Schuermann (2004). loans and preferred shares. Operations with securities have average LGD of 12% and operations without securities have average LGD of 35%. the caution to appropriately include the costs of such recovery and the definition of the discount rate to calculate the present value of this flow.

specific financing and others). and a logistic regression model was used. type of industry and company time are variables that can affect the loss of contracts. a mean of 47% and that the outstanding balance. number of credit cards. current account overdraft and working capital. debit balance and region of residence are variables that can influence the LGD value of the contract. (2010) used decision tree to predict LGD for loans from a financial institution in the UK. Silva et al. and the exposure. due to the period selected. covering a period from 1989 to 2004. The analysis of the LGD was also recommended. 2. The decision tree indicates a two stage modeling process: First LGD was reclassified as binary. adding macroeconomic variables to their previous study and found that. also called loanto-value. exposure amount and time to default as predictive variables. found an average LGD of 29% and showed that variables such as the loan amount. From this model’s response. and suggests that regression tree presented estimates closer to the true values when the workout time recovery are 12 to 24 months. Qi and Yang (2009) studied mortgage loans and showed that LGD can be explained by the percentage borrowed relative to the total value of the property. credit or behavioral scores. customer size. Bastos (2010) compared fractional regression and nonparametric regression tree using data on loans to small and medium enterprises from a bank of Portugal.557 operations registered in the SCR (Credit Information System of the Central Bank of Brazil) in the modalities: overdraft secured-check. if the loan is classified as LGD > 0. the value of LGD was predicted from a linear regression using historical payment delays. if the property is used for housing and the time passed since the beginning of the loan.3 Statistical Models for LGD Belotti and Crook (2008) developed predictive LGD models for credit cards in Britain.Sixth Brazilian Conference on Statistical Modelling in Insurance and Finance client code. identifying that exposure amount. the depreciation of the property. the client’s score. the length of customer relationship. Variables such as length of relationship. type of employment. (2008) studied 9. and compared ordinary least squares regression with tobit regression and decision tree. the purpose of financing. Matuszyk et al. where Yi = 0 if LGD ≤ 0 and Yi = 1 if LGD > 0. The distribution of two peaks in this study was also verified. It is also possible to observe the distribution with two peaks. recovery time. presence of security. OLS models are as good as tobit regression and decision tree. the time in which the client lives at the same address and if there is another loan applicant influence the binary variable. the type of customer. Only the client code successfully explains the variability of the LGD (this variable represents some characteristics of the client). time at address. Belotti and Crook (2009) developed another study of predictive models of LGD with credit card products in Britain. income. history of payment delays. security and the company’s industry influence the LGD. it was not possible to prove that these macroeconomic variables influence the LGD just as the previously mentioned variables. 4 . Chalupka and Kopecsni (2008) studied losses of companies at default and the average of the LGD was 52%. presence of renegotiations and the company’s industry sector affect the value of the LGD. focusing on the segment of contracts (retail. Dermine and Carvalho (2006) developed a study with 371 credit operations of companies from a bank in Portugal. Belotti and Crook (2008) developed predictive models of LGD with credit card products in Britain. They also observed the distribution of two peaks of LGD. the amount of the loan. rating.

2 Logistic Regression Since the purpose of this paper is to analyze the factors that influence the classification of loss given default and. Deutsche Bank. LGD. neural networks and regression tree. each retail exposure must be allocated in a homogeneous risk group. One stage techniques such as linear regression. low loss. 3 3. high loss and Yi = 0 for groups with LGD lower than 50%. covering a period from 1987 to 2003.Sixth Brazilian Conference on Statistical Modelling in Insurance and Finance Zhang and Thomas (2012) compared a linear regression model with survival analysis in predicting LGD for unsecured and credit cards loans from a financial institution in the UK. and nonlinear models. homogeneous exposures and allow accurate and consistent estimations of loss characteristics. which creates a logistic regression model for the probability of loss and a linear regression model to the severity of the loss. It should also consider the characteristics of the borrower. The selected data refer to retail exposures of homogeneous risk groups. EAD (in thounsands of euros) and Basel segment classification were selected. Commonwealth. dividing loans as small and medium enterprise loans. PD. Barclays. risk exposures. beta regression. the operation and default (BIS. risk management processes and the capital adequacy of institutions. Two-stage models that combine linear and nonlinear techniques also obtain good accuracy. Credit Suisse. qualifying revolving retail exposures (such as credit cards) and other loans.1 Methodology Data According to Basel II. RBS. National Australian Bank. We defined the binary variable as Yi = 1 for groups with LGD greater than or equal to 50%. robust regression. that combine more than one technique. residential mortgage loans. The model used to explain the probability of Yi = 1 is the binary logistic regression 5 . with a one stage linear regression model. the binary logistic regression analysis is the most appropriate. The data base is composed of 214 homogeneous risk groups of credit loans from these 8 countries. Leow and Mues (2012) compared a two-stage model. we analyzed 12 risk management reports of financial institutions (Australia and New Zealand Banking Group. The authors found that the two-stage model has better performance and accuracy in predicting LGD. the credit recovery. In accordance with paragraphs 401 and 402 of Basel II. under paragraph 809. (2010). were compared. and two-stage models. Linear regression obtained better results than survival analysis for both cases: where LGD was modeled directly and where a mixture of distributions was used as a two stage model similar to Matuszyk et al. 2004). Danske Bank. ridge regression. 3. NIBC. Basel segment classification is defined by Basel II Accord. that is. The study indicated that most of the LGD variability can not be explained. which should provide risk differentiation. that is. Santander. These institutions usually release an annual risk management report for the market. consequently. In this paper. SNS Bank’s and Westpac) from December/2008 to March/2011. institutions must subject to a pillar called Market Discipline (Pillar 3) in which. such as neural networks. achieve better results than more traditional linear models. Loterman et al. market participants can access key information on capital. splines regression. (2012) compared LGD modeling techniques.

mean value. βk are the model parameters related to the k explanatory variables.81% 8. maximum and standard deviation of exposure (EAD). thus being one of the countries with the lowest risk compared with the others. The groups were developed to be homogeneous with respect to the risk of retail exposures and were obtained from 12 financial institutions. π(x) is the estimated probability of high-loss and xk is the k-th explanatory variable. which can be categorical. In addition. represented by the PD multiplied by the LGD (BIS. .74% 100.1 Results Descriptive Statistics Table 1 shows the distribution of homogeneous risk groups for the countries. it presents the highest standard deviation of the LGD component. 2004) are higher than the others. B1 .Sixth Brazilian Conference on Statistical Modelling in Insurance and Finance model.00% Tables 2. Australia and Scotland have the highest means after England (approximately 50%). in this case we estimated the probability of high loss.02% 9. The binary logistic regression relates a binary response variable with explanatory variables. According to Hosmer and Lemeshow (2000) the ideal function to model binary cases is the logit function. with the highest median of PD and highest minimum.21% 3. In the case of the PD component. median. EAD (million dollars) and PD (%) for each country used. Note that England is the country with the highest mean value of LGD. . continuous or discrete.. England has the lowest coefficient of variation. indicating that the percentage of expected loss of these countries. In the case of component LGD (loss given default). the highest median. the highest minimum value and the lowest maximum value. These countries also have the highest means of PD.49% 14. Table 1: Distribution of groups for the countries Country Number of Groups % Australia Scotland Denmark Spain Germany Netherlands Switzerland England Total 83 31 30 21 18 14 9 8 214 38. which is presented in the equation 2. .79% 14. Netherlands is the country that indicates the lowest average of loss given default (LGD) and the lowest average of exposure at default (EAD). The database consists of 214 groups of contracts arising from 8 countries. π(x) = 4 4. 3 and 4 present the descriptive analysis of the LGD variables (%).41% 6. 6 . indicating the highest risk among the countries analyzed. eβ0 +β1 x1 +β2 x2 +···+βk xk (2) 1 + eβ0 +β1 x1 +β2 x2 +···+βk xk Where B0 . The model estimates the probability of one of the binary responses.54% 4. indicating concentration and little discrimination of risk.

0% 8. Average Median Max.0% 97.5% 9.5% 5.846 2. Australia Scotland Denmark Spain Germany Netherlands Switzerland England 2 57 16 460 80 179 19.7% 14.0% 79.869 74.3% 19.0% 9.0% 0.689 79.404 6. C.5% 29.6% 191% 195% 220% 183% 165% 170% 138% 50% Table 5 shows the number of homogeneous risk groups by Basel Segment for each country.7% 14.5% 1. Spain. which presents the 8 homogeneous risk groups of Barclays Bank.324 7.D.3% 9.678 3.3% 36.754 2.0% 0. for example Schuermann (2004).8% 30. Figure 1 shows the distribution of LGD.358 14.868 20.7% 24.D. 0.6% 60.V.096 6.119 89.0% 1.7% 6.5% 9.0% 13.0% 11.485 34.597 3.5% 17.9% 5.4% 32.275 222% 181% 138% 133% 142% 98% 178% 113% 7 .7% 1.386 68.2% 4.(%) C.0% 70. the only bank that generated a report of the operations in England.5% 4. Germany. Scotland and Australia have an approximately equal distribution of their contracts to all segments and Denmark.3% 9.053 8.745 3.2% 50.3% 32.(%) C.151 70.6% 62. Table 7 indicates that revolving credit agreements have higher average loss given default (LGD) and mortgage contracts have lower average loss given default (LGD). The measures of LGD.0% 0. and note that the Netherlands only contains contracts of Real Estate Loans. 20.2% 37.695 1.047 8.9% 2.9% 13.V.2% 7.562 182.6% 24.1% 0.02 2.9% 53.5% 18.D.3% 38.8% 35. (%) Average (%) Median (%) Max.7% 60. PD and EAD of England were obtained through the exploratory analysis of data provided in Table 6.4% 39.3% 10.6% 62.3% 8. England.9% 100.205 232.5% 58. Note the existence of two peaks.2% 3.4% 3.036 14. Netherlands and Switzerland do not have contracts classified as Small and Medium Enterprises.0% 0.9% 8.1% 10. Table 4: Descriptive Analysis of EAD (US$ million) for the countries Country Min.5% 52% 57% 41% 62% 40% 59% 39% 50% Table 3: Descriptive Analysis of Average PD (%) for the countries Country Australia Scotland Denmark Spain Germany Netherlands Switzerland England Min. (%) S.6% 0.718 27.Sixth Brazilian Conference on Statistical Modelling in Insurance and Finance Table 2: Descriptive Analysis of LGD (%) for the countries Country Australia Scotland Denmark Spain Germany Netherlands Switzerland England Min.8% 0.3% 0.792 4.9% 12.3% 13.8% 35.1% 27.093 34.2% 0. (%) S.2% 16.V. (%) Average (%) Median (%) Max.0% 44.5% 39. as noted in the literature.8% 26. verified by the lowest mean of PD and LGD of this group.294 26.8% 54.0% 0.842 15.175 1.1% 1.3% 6. S.9% 19.1% 2. and these exposures indicate the lowest risk.269 31.79 23.5% 53. Note that the database contains a high exposure to real estate loans.142 3.7% 67.4% 97.

loss given default.10% 8.486 57.6% 97.31% 2.753 19.1% 57. we 8 . it is possible to notice a greater amount of risk groups in the class of high loss (136 observations). and note also that the average PD is similar for these two groups. Most homogeneous risk groups classified as real estate loans obtained loss lower than 50%.75% 61.1% 21.69 22.1% 73. To represent the categorized variable (segment) in a binary logistic regression.2% 14.489 210.42% 3. Table 9 shows the number of homogeneous groups classified as high and low loss in each Basel segment classification.842 Small and Medium Enterprises Real Estate Loans Revolving Credit Others Small and Medium Enterprises Real Estate Loans Revolving Credit Others Figure 1: Distribution of LGD 4. Note also that most homogeneous risk groups classified as revolving credit obtained loss greater than or equal to 50%. These data are presented in Table 8.9% 79.88% 8.Sixth Brazilian Conference on Statistical Modelling in Insurance and Finance Table 5: Number of Homogeneous Risk Groups by Basel Segment for each country Country Real Estate Loans Others Revolving Credit Small and Medium Enterprises 24 9 10 7 6 14 4 2 76 24 7 10 7 6 0 4 2 60 23 9 10 7 6 0 1 2 58 12 6 0 0 0 0 0 2 20 Australia Scotland Denmark Spain Germany Netherlands Switzerland England Total Table 6: Homogeneous risk groups Bank Date Barclays Barclays Barclays Barclays Barclays Barclays Barclays Barclays Dec/2009 Dec/2009 Dec/2009 Dec/2009 Dec/2010 Dec/2010 Dec/2010 Dec/2010 PD (%) LGD (%) EAD (US$ million) Segment 6. into two groups using the cutoff in the LGD of 50%. indicating the highest risk related to this component of all segment classifications available.433 20.78% 5.2 Logistic Regression By dividing the response variable.682 46.87% 2. indicating lower risk in this component. The average EAD is higher in groups with low loss.2% 85.49% 2.784 232.8% 16.

0% 65.0005 . Table 11: Parameters and descriptive level of the logistic regression Descriptive Parameter Estimator Descriptive Level Intercept Average PD EAD (US$ million) Real Estate Segment Others Segment Revolving Segment SME Segment -1.055800000 0. are determinants in the probability of high loss of the group.0207 0.470400000 -0.2% 17. It is possible to notice.6757 0.000000475 -3.101800000 1.000000000 0. we noted that the variables EAD and Segments are still significant for the model. of Observations Real Estate Loans Others Revolving Credit SME1 LGD < 50% LGD ≥50% 136 78 75 1 29 31 17 41 15 5 Small and Medium Enterprizes created three dummy variables (indicators of 0 and 1 in case the observation presents the field observed) so that the small and medium enterprises segment is the reference class and receive the value 0 in the three dummies created . The indicator of average PD does not discriminate the loss very well (descriptive level higher than 0.8% 15.283 4.4% 8.6% 41. average PD and exposure for the binary categories of LGD Class of LGD PD (%) N.134 136 78 Table 9: Number of groups of each Basel segment for the binary categories of LGD 1 Class of LGD N. The values of the parameters and descriptive levels are presented in Table 11.142600000 0.753 10.7% 43. revolving and SMEs) using a descriptive level of 10%. others.0% Table 8: Number of groups.352900000 2. Table 10: Dummy variables for the Basel segment classification Field Real Estate Segment Others Segment Revolving Segment Real Estate Loans Others Revolving Credit Small and Medium Enterprises 1 0 0 0 0 1 0 0 0 0 1 0 The indicators of exposure (EAD) and segment (real estate. through the parameter of the 9 .0% 19. as shown in Table 10.0062 0.0309 0.7% 54. By excluding the variable Average PD. of Observations LGD < 50% LGD ≥ 50% EAD (US$ million) Average Standard Deviation Average Standard Deviation 7.967 38.10) and was excluded from the regression model.0922 0.Sixth Brazilian Conference on Statistical Modelling in Insurance and Finance Table 7: Average LGD for each Basel segment Segment Average LGD (%) Real Estate Loans Revolving Credit Others Small and Medium Enterprises Total 17.

and out of the groups that presented low loss.000000000 0.334 4. This is due to the fact that the least risky segment. internal models of loss should have a key role in risk management. This means that financial institutions that were analyzed in the study use their models for management. the model correctly classified 92% of the observations. These results are shown in Table 12. The matrix that indicates the classifications resulting from the cutoff point 50% is shown in Table 15. the model correctly classified 71% of the observations.000000476 -3. that the real estate segment is the least risky with regard to the high probability of loss. others and. Table 13: ODDS Ratio of the Variable Segment Descriptive ODDS Ratio Real Estate Segment vs. revolving credit. These results are shown in Table 14. indicates exposure values higher than the others. followed by loans to small and medium enterprises. It is also evident that the greater the exposure (EAD) the lower the probability of high loss.Sixth Brazilian Conference on Statistical Modelling in Insurance and Finance model.045 3. because as institutions 10 .0006 . finally. These two variables are not correlated as a whole (correlation of -0.0911 0. SME Revolving Segment vs.0338 0. others and. the logistic regression shows that groups with higher exposure are less likely to indicate high loss. revolving credit.345400000 2.133 The cutoff point that maximizes the percentage of hits of the model is 50%. SME 0. Table 13 shows the odds ratio for the variable segment. finally.0060 0. SME Others Segment vs. and this could be a possible variable to influence loss. Table 12: Parameters of the logistic regression without the PD variable Descriptive Parameter Estimator Descriptive Level Intercept EAD (US$ million) Real Estate Segment Others Segment Revolving Segment SME Segment -1. The ODDS indicate that the real estate segment is the least risky with regard to the probability of loss. followed by loans to small and medium enterprises (SMEs). Models built solely for purposes of Basel are not acceptable.20) but it is possible to notice that the average of the exposure to real estate credit is greater than the others. and out of the groups that presented high loss.110800000 1. and with this cutoff point the model makes the correct prediction for 79% of the observations. the real estate credit. Table 14: Exposure to real estate credit and other segments (US$ million) Descriptive Average EAD (US$ million) Real Estate Segment Others Segments 29.046300000 0.0213 0. In accordance with paragraph 444 of Basel II.096200000 -0.739 As previously mentioned. Revolving credit agreements present approximately seven times more chances of high-loss than the contracts of small and medium enterprises and other credit contracts present approximately four times more chances than contracts of small and medium enterprises.840 7.

they could make this recovery more efficient and achieve a lower loss. For further studies. Chalupka and Kopecsni (2008). 5 Conclusions and recommendations The study found that the segment of the contract (real estate. they can make this recovery more efficient and achieve a lower loss. for instance. especially regarding to the loan segment classification and its collateral. (2000). The variable probability of default (PD). Schuermann (2004).Sixth Brazilian Conference on Statistical Modelling in Insurance and Finance Table 15: Matrix of assertiveness of the model Estimate Performed Low Loss High Loss Total Low Loss High Loss 97 6 103 39 72 111 Total 136 78 214 use models in credit recovery. revolving credit. as they are mandatory for the application of Basel. Dermine and Carvalho (2006). we recommend a study on the influence of the use of models in loss management. 11 . confirming results from Asarnow and Edwards (1995). for instance. Gupton et al. Silva et al. As institutions better differentiate their customers in credit recovery. (2008). Belotti and Crook (2008). Hurt and Felsovalyi (1998). for this database. did not affect the LGD. others or small and medium enterprises) and the size of the exposure at the time of default (EAD) are variables that influence the probability of high loss given default (LGD). The logistic model correctly classified 92% of the observations of high loss given default (LGD ≥ 50%) and 79% of total observations.

. 30 . A. (2010). Journal of Commercial Lending. J. Journal of the Operational Research Society. 34 . A. Kapstein. Bank loan-loss provisioning. Measuring loss on defaulted bank loans: A 24-year study. 185. Loss given default models for uk retail credit cards (Tech. Bank capital regulation in contemporary banking theory: A review of the literature. 61 . International Journal of Forecasting.). Londres: London UK Risk Book. 41–84. from http://www.). Journal of Banking and Finance. Hurt. (2012). Forecasting bank loans loss-given-default.). Tech.. Marins. Edinburgh: University of Edinburgh Business School. X. a 27-year study of 27 countries.. T.BCBS. Rep.). (2000). Loss given default on a medium-sized italian bank’s loans: an empirical exercise (Tech. New York: Moody’s Investor Service. G. Leow. Edinburgh: University of Edinburgh Business School. Loss given default of high loan-to-value residential mortgages. BIS. (2009). Gates. Schuermann. Global Credit Research.. Journal of Banking and Finance. 2510–2517. International Journal of Forecasting. C. Losscalc: Model for predicting loss given default (Tech. J. Dermine. M. W. (2002). Rep. 1219–1243. Benchmarking regression algorithms for loss given default modeling. & Crook. 28 (1). D. D.. & Mues. 10 (2). Querci. Milan: European Financial Management Association. 183–195.. & Lemeshow. Credit Research Centre. Charles University Prague. Bastos. shimko. (2012).bis. C. 80 . Rep. Rep. (2008). 161–170. (1995). T. Thomas.). & Felsovalyi. Retrieved 17 jun. Hosmer. G. & Kopecsni.a revised framework (Tech. Rep. & Neves. S. M. F. Financial Markets. Gupton. Princeton: Essays in International Finance.. Santos. M. 360–382.. (1998). New York: Moody´s Investors Service. International convergence of capital measurement and capital standards . Silva. methodology and application. (2005). (2001).. (2009). J. 2011. Loterman et al. 77 . 788–799. & Mues.Sixth Brazilian Conference on Statistical Modelling in Insurance and Finance References Asarnow. (2004). L.).org Chalupka. What do we know about loss given default? d. New York: John Wiley & Sons. (2008). T. E. Matuszyk. Gupton. Bank loan loss given default (Tech. (2006). Rep. 41–46.). Rep. & Edwards. (2004). L. & Stein. J. Credit Research Centre. The Journal of Lending and Credit Risk Management. Modelling and estimating loss given default for credit cards (Tech. 393–398. credit risk: Models and management (2nd ed. (1994). C. D. Loss given default: um estudo sobre perdas em 12 . & Yang. Predicting loss given default (lgd) for residential mortgage loans: A two-stage model and empirical evidence for uk bank data. (2008). (2000). A. & Carvalho. & Crook.. 59 (4).). L... 28 . J. & Carty. Measuring loss on latin american defaulted bank loans.. Qi. 11–23.. Modelling lgd for unsecured personal loans: Decision tree approach. J. (2010). J. Journal of Banking and Finance. E.. G. Belotti. R. Applied logistic regression (2nd ed. 33 (5). R.).. BASEL COMMITTEE ON BANKING SUPERVISION . Belotti.. Institutions and Instruments. Faculty of Social Sciences. Global Credit Research. Modelling bank loan lgd of corporate and sme segments: A case study. Supervising international banks: Origins and implications of the basel accord (Vol.

.. In Anais. Zhang.Sixth Brazilian Conference on Statistical Modelling in Insurance and Finance opera¸c˜oes prefixadas no mercado brasileiro. (2012). L. Rio de Janeiro: XXXII EnANPAD. Comparisons of linear regression and survival analysis using single and mixture distributions approaches in modelling LGD. International Journal of Forecasting. 1–15). 13 . C. (pp. 28 .. 204–215. J. & Thomas.

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