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Collateral sufficiency as an adapt financial covenant in bank crediting

Karminskii A.M. National Research University Higher School of Economics, Moscow, Russian Federation ( karminsky@mail.ru )

Khon O.D. National Research University Higher School of Economics – Saint Petersburg, St. Petersburg, Russian Federation ( okhon@hse.ru )

Journal: Finance and credit, #6, 2018

Importance The article examines the loan-to-value ratio in three dimensions. First, as a measure of leverage, helpful to understand the spread of systemic risk in the economy. Second, we identify LTV throughout financial covenants. Finally, we implement LTV to indicate the probability of default.
Objectives The goal of the paper is to study the impact of collateral sufficiency on credit risk throughout adjusted financial covenants for bank corporate loans.
Methods To conduct the research, the authors implement econometric methods, linear regressions and binary models.
Results We have revealed the prevalence of the posterior theory of the impact of the collateral sufficiency on the credit risk evaluation by corporate loans. We have also revealed that the higher credit risks, the higher collateral requirements to pledge the loans.
Conclusions and Relevance We have considered a new approach to identify collateral requirements, throughout LTV measures, as adjusted financial covenants on the Russian market. Lender’s preferences are being stronger at the time of downturns in economic activity. At the same time, economic growth neutralizes any visible behavioral favors/patterns. Hereby psychological risk components are quite essential, and need studying in modern banking.


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