Bank Loans Valuation: A Straightforward Approach
22 Pages Posted: 14 May 2019
Date Written: May 9, 2019
Bank loans are often associated with a nominal valuation in banking books. Such valuation may prove irrelevant in case of portfolio liquidations such as those triggered by financial distress. How then can one provide an alternative assessment of those non-marketable assets? We propose in this paper a simple valuation framework for loans. We ground our work on a data set collected for a study on eligible collateral and related in particular to high rated credit claims submitted by banks to the collateral of the Eurosystem. Our contribution is to produce an analysis on the determination of loan rates at issuance by banks and to assess a pricing methodology to determine a sale price for this asset class. The study is also completed by risk analysis with the computation of the value's evolution of a given credit claims cohort and stress-tests.
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