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Estimating Recovery Rates on Bank’s Historical Loan Loss Data

Bandyopadhyay, Arindam and Singh, Pratima (2007): Estimating Recovery Rates on Bank’s Historical Loan Loss Data.

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Abstract

The main objective of this paper is to estimate a statistical model that incorporates information at different levels: collateral, facility, industry, zone and the macro economy to predict the Recovery Rates which will enable the bank to arrive at the Loss Given Default figure that would help to better price and manage credit risk. This estimated LGD can also play a critical role in meeting the Basel II requirements on advanced Internal Rating Based Approach (AIRB).

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