Výsledky projektu Modelovanie ohrožených firemných úverov: Prípad bankového sektoru ČR

Loss given default (LGD) is one of key parameters to estimate credit risk in an internal rating based approach considered in The New Basel Capital Accord. The aim of this paper is to find determinants of LGD using a set of firm loan micro-data of an anonymous Czech commercial bank. We find that LGD is driven primarily by the period of loan origination, relative value of collateral, loan size and length of business relationship. Different models employed in our analysis provide similar results; in more complex models, log-log models appear to perform better, implying an asymmetric response of the dependent variable.

This paper focuses on the key credit risk parameter – Loss Given Default (LGD). We describe its general properties and determinants with respect to seniority of debt, characteristics of debtors and macroeconomic conditions. Furthermore, we illustrate how the LGD can be extracted from market observable information with help of the adjusted Mertonian structural approach. We present a derivation of the formula for the expected LGD and show its sensitivity with respect to other structural company parameters. Finally, we estimate the 5-year expected LGDs for companies listed on the Prague Stock Exchange and find that the average LGD for this analyzed sample is in the range of 20––45 %. To the authors’ knowledge, these are the first implied market estimates of LGD in the Czech Republic.