Home  Journals  Finance and Credit  22(694) - 2016 June

Assessing the particular risks in bank long-term lending

Vol. 22, Iss. 22, JUNE 2016

Article PDF Version

Received: 6 April 2016

Received in revised form: 25 April 2016

Accepted: 12 May 2016

Available online: 15 June 2016

Subject Heading: Banking

JEL Classification: C65, G21

Pages: 2-16

Importance The unstable situation in the country caused by external financial crisis and imposed sanctions substantially increased the risk of bank credit transactions. The high risk, which is inherent in long-term loans, may be one of constraints in granting long-term credit resources by banks.
Objectives Among risks that are essential in bank long-term lending, the risks of certain types of long-term loans (particular risks) hold a peculiar place, each having its own origin and calculation formula. There are a lot of works on this matter in economic literature, however, the presented formulas of calculating the risk under investigation have heterogeneous methodological nature, and this fact complicates their consideration in the same context.
Methods The particular risks of long-term lending are calculated based on statistical indexes, like expected value, root-mean-square difference, coefficient of variation. The root-mean-square difference is the absolute measure of risk and the coefficient of variation is its relative measure.
Results The methodology may be used in banking practice for additional analysis of risk inherent in certain types of long-term loans, which have an impact on the level of risk of the bank's entire portfolio of long-term loans.
Conclusions Additional indexes for assessing the particular risks of long-term lending will allow banks to take into account the specific features of long-term lending thus strengthening their information and analytical base. If applied, this approach will enable to regulate volumes and areas of use of the long-term resources, mitigate bank risks and increase the efficiency of the long-term lending.

Keywords: long-term lending, particular risk, statistical index

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