The Role of Non-Financial Factors in Internal Credit Ratings

31 Pages Posted: 22 Mar 2002 Last revised: 2 Sep 2009

See all articles by Jens Grunert

Jens Grunert

University of Tuebingen - Department of Banking

Lars Norden

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE)

Martin Weber

University of Mannheim - Department of Banking and Finance

Date Written: January 14, 2004

Abstract

Internal credit ratings are expected to gain in importance because of their potential use for determining regulatory capital adequacy and banks' increasing focus on the risk-return profile in commercial lending. Whereas the eligibility of financial factors as inputs for internal credit ratings is widely accepted, the role of non-financial factors remains ambiguous. Analyzing credit file data from four major German banks, we find evidence that the combined use of financial and non-financial factors leads to a more accurate prediction of future default events than the single use of each of these factors.

Keywords: Credit risk, Credit ratings, Debt default, Probit analysis

JEL Classification: G21

Suggested Citation

Grunert, Jens and Norden, Lars and Weber, Martin, The Role of Non-Financial Factors in Internal Credit Ratings (January 14, 2004). Journal of Banking and Finance, Vol. 29, No. 2, pp. 509-531, 2005. Available at SSRN: https://ssrn.com/abstract=302689 or http://dx.doi.org/10.2139/ssrn.302689

Jens Grunert

University of Tuebingen - Department of Banking ( email )

Mohlstrasse 36
D - 72074 Tuebingen
Germany

Lars Norden (Contact Author)

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE) ( email )

Rua Jornalista Orlando Dantas 30
Rio de Janeiro, 22231-010
Brazil
+552130832431 (Phone)

HOME PAGE: http://www.larsnorden.de

Martin Weber

University of Mannheim - Department of Banking and Finance ( email )

D-68131 Mannheim
Germany
+49 621 181 1532 (Phone)
+49 621 181 1534 (Fax)

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