The impact of macroeconomic factors on collateral value within the framework of expected credit loss calculation

Yurchenko, Yurii (2019): The impact of macroeconomic factors on collateral value within the framework of expected credit loss calculation.

Abstract

The study examines the impact of macroeconomic factors on the expected credit losses of a financial instrument related to changes in the value of collateral. The author has developed a method of calculating this impact on the basis of econometric models, as well as simulated the effect on expected credit losses and reserves on a financial instrument. Based on the proposed approach, appropriate models have been constructed based on the data of the US and Ukrainian economies for the maximum period available, taking into account the adequacy of the data. In particular, it has been shown that applying the methodology of adjusting collateral value to macroeconomic factors can lead to a reduction of the reserve according to the requirements of the regulator, i.e. from the financial institution's point of view it is possible to release some of the funds additionally.

• Item Type: MPRA Paper
• Language: English
• Keywords: LGD, Collateral value, OLS, Credit risk, valuation, GLM
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill

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