Modelling the recovery outcomes for defaulted loans

A survival analysis approach

Research output: Contribution to journalArticleResearchpeer-review

4 Citations (Scopus)

Abstract

This study investigates the determinants affecting the recovery outcome for bank loans when firms default. We develop survival analysis models, explaining the transition hazards of bank loan recoveries varying over time within the conditional probability of firms either fully recovering or not. Both loan and recovery covariates are critical for recovery outcomes. Furthermore, we identify a hump-shaped hazard function peaking at 23 months from default date followed by a drop. The log–logistic parametric model describes the best fit. Our results demonstrate the significant covariates affecting loan recovery rates, highlighting the importance for banks to structure their loans in the best possible way.
Original languageEnglish
Pages (from-to)79-82
Number of pages4
JournalEconomics Letters
Volume145
DOIs
Publication statusPublished - 2016

Keywords

  • Credit risk
  • Recovery rates
  • Survival analysis

Cite this

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title = "Modelling the recovery outcomes for defaulted loans: A survival analysis approach",
abstract = "This study investigates the determinants affecting the recovery outcome for bank loans when firms default. We develop survival analysis models, explaining the transition hazards of bank loan recoveries varying over time within the conditional probability of firms either fully recovering or not. Both loan and recovery covariates are critical for recovery outcomes. Furthermore, we identify a hump-shaped hazard function peaking at 23 months from default date followed by a drop. The log–logistic parametric model describes the best fit. Our results demonstrate the significant covariates affecting loan recovery rates, highlighting the importance for banks to structure their loans in the best possible way.",
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author = "Fenech, {Jean Pierre} and Yap, {Ying Kai} and Salwa Shafik",
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Modelling the recovery outcomes for defaulted loans : A survival analysis approach. / Fenech, Jean Pierre; Yap, Ying Kai; Shafik, Salwa.

In: Economics Letters, Vol. 145, 2016, p. 79-82.

Research output: Contribution to journalArticleResearchpeer-review

TY - JOUR

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T2 - A survival analysis approach

AU - Fenech, Jean Pierre

AU - Yap, Ying Kai

AU - Shafik, Salwa

PY - 2016

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N2 - This study investigates the determinants affecting the recovery outcome for bank loans when firms default. We develop survival analysis models, explaining the transition hazards of bank loan recoveries varying over time within the conditional probability of firms either fully recovering or not. Both loan and recovery covariates are critical for recovery outcomes. Furthermore, we identify a hump-shaped hazard function peaking at 23 months from default date followed by a drop. The log–logistic parametric model describes the best fit. Our results demonstrate the significant covariates affecting loan recovery rates, highlighting the importance for banks to structure their loans in the best possible way.

AB - This study investigates the determinants affecting the recovery outcome for bank loans when firms default. We develop survival analysis models, explaining the transition hazards of bank loan recoveries varying over time within the conditional probability of firms either fully recovering or not. Both loan and recovery covariates are critical for recovery outcomes. Furthermore, we identify a hump-shaped hazard function peaking at 23 months from default date followed by a drop. The log–logistic parametric model describes the best fit. Our results demonstrate the significant covariates affecting loan recovery rates, highlighting the importance for banks to structure their loans in the best possible way.

KW - Credit risk

KW - Recovery rates

KW - Survival analysis

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JF - Economics Letters

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