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ИД «Финансы и кредит»






Digest Finance

Collateral sufficiency as an adapt financial covenant in bank crediting

Vol. 26, Iss. 1, MARCH 2021

PDF  Article PDF Version

Received: 23 April 2018

Received in revised form: 7 May 2018

Accepted: 21 May 2018

Available online: 30 March 2021

Subject Heading: Banking

JEL Classification: G21

Pages: 83–106


Aleksandr M. KARMINSKII National Research University Higher School of Economics (HSE University), Moscow, Russian Federation


Ol'ga D. KHON National Research University Higher School of Economics – St. Petersburg (HSE University), St. Petersburg, Russian Federation


Subject. 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.

Keywords: credit risk, collateral, loan-to-value, adapt financial covenant, bank loan


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