Non-Performing Loans: Logit Model Applications

103 Pages Posted: 10 Oct 2020

See all articles by Giuseppe Orlando

Giuseppe Orlando

Università degli Studi di Bari “Aldo Moro” (UNIBA) - Department of Economics and Mathematical Methods; Università degli Studi di Camerino - School of Science and Technologies

Roberta Pelosi

affiliation not provided to SSRN

Date Written: July 24, 2020

Abstract

Within bank activities, which is normally defined as the joint exercise of savings collection and credit supply risk-taking is physiological, as for a lot of human activities. Among risks related to credit inter-mediation, credit risk assumes particular importance. It is most simply defined as the potential that a bank borrower or counter party fail to fulfill correctly at maturity the pecuniary obligations assumed as principal and interest. Whenever this happens, a loan is non-performing. Among the main risk’s components, the Probability to Default and the Loss Given Default have been the subject of greater interest for research. In this paper, logit model is used to predict both the component. Financial ratios are used predicting PD. Time of recovery and presence of collateral are used to predict LGD.

Keywords: credit loss, default probability, credit risk, forecasting

JEL Classification: G01, G18, G21, G28, G32

Suggested Citation

Orlando, Giuseppe and Pelosi, Roberta, Non-Performing Loans: Logit Model Applications (July 24, 2020). Available at SSRN: https://ssrn.com/abstract=3677064 or http://dx.doi.org/10.2139/ssrn.3677064

Giuseppe Orlando (Contact Author)

Università degli Studi di Bari “Aldo Moro” (UNIBA) - Department of Economics and Mathematical Methods ( email )

Via C. Rosalba 53
VI Floor, Room 12
Bari, 70124
Italy
+39 080 5049218 (Phone)

Università degli Studi di Camerino - School of Science and Technologies ( email )

Via M. delle Carceri 9
Camerino, 62032
Italy

Roberta Pelosi

affiliation not provided to SSRN

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