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Financial Analytics: Science and Experience

Assessment of the borrowers default

Vol. 9, Iss. 3, JANUARY 2016

Received: 23 November 2015

Received in revised form: 15 December 2015

Accepted: 22 December 2015

Available online: 27 January 2016


JEL Classification: 

Pages: 39-48

Sofronova V.V. National Research University Higher School of Economics, Nizhny Novgorod Branch, Nizhny Novgorod, Russian Federation

Importance External shocks slow down the national economic development, thus worsening borrowers ability to service their debts. Hence, it is reasonable to analyze the creditworthiness of rating systems so to differentiate clients per their risk exposure, through the borrower default model.
     Objectives The research systematizes and selects financial and other corporate performance indicators that give a true view of financial standing and default probability. The research tests the model in entities within another period, substantiates that banks should use rating system for credit risk assessment on the basis of default probability so to properly differentiate borrowers.
     Methods The research draws upon methods of analysis, synthesis and summarization of the current phenomena in the bank lending segment, econometric analysis of factors that influence corporate financial position, regression analysis, model testing.
     Results I found that financial performance appraisal indicators differently influenced the probability of default. I built a model to assess the probability of the borrowers default with forecasting power. The article also describes trends in bank lending.
     Conclusions and Relevance The quality of banks loan portfolios deteriorates. It would be reasonable to differentiate the creditworthiness of borrowers on the basis of default rating models and apply a conservative approach to identify factors influencing corporate financial standing. I suggest ranking borrowers by their credit risk exposure to set up an interest rate, and make banks liable for non-compliance with creditworthiness assessment procedures.

Keywords: credit risk, default, borrower


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