The Role of Non-Financial Factors on Internal Credit Ratings

36 Pages Posted: 6 Aug 2002

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); Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças

Martin Weber

University of Mannheim - Department of Banking and Finance

Date Written: June 2002

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. Therefore, the components of internal credit ratings merit not only a qualitative but also a quantitative analysis. Whereas the eligibility of financial factors as inputs for credit ratings is widely accepted, the role of non-financial factors remains ambiguous. Analysing 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 current and future default events than the single use of each of these factors respectively.

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 on Internal Credit Ratings (June 2002). Available at SSRN: https://ssrn.com/abstract=321084

Jens Grunert (Contact Author)

University of Tuebingen - Department of Banking ( email )

Mohlstrasse 36
D - 72074 Tuebingen
Germany

Lars Norden

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

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças ( email )

Praia de Botafogo 190/1125, CEP
Rio de Janeiro RJ 22253-900
Brazil

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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