Multinational Banks, Credit Risk and Financial Crises: A Qualitative Response Analysis

Posted: 30 Mar 2005

See all articles by Sotiris K. Staikouras

Sotiris K. Staikouras

City University - Cass Business School; ALBA Graduate Business School

Abstract

The global financial unrest over the last decade has shifted the attention of banking regulators (Basel II, 2001) in estimating default probabilities for a variety of borrowers. Within a binary choice panel data framework, the current study analyzes various models and cross-examines their performance in identifying financial crises in emerging markets. Using financial ratios, macroeconomic variables and international factors, the paper identifies a set of warning indicators and discriminates among the three estimators employed. The most important determinants of commercial/official arrears and reschedulings are the debt to GDP ratio, inflation, trade liberalization and variability of GNP per capita growth. In addition to that, changes in financial flows from foreign investors do affect default frequencies, while external developments are found to be insignificant. Cross-modeling comparison indicates the presence of different exogenous risk factors depending on the approach employed. Further analysis indicates the presence of heterogeneity but pertinent estimators fail to perform well. Unlike the fixed and random effects estimators, the pooled-logit model yields the minimum number of misclassifications. When past credit performance is taken into account the significance of some signals is reduced, but the model's misclassification performance is markedly enhanced.

Keywords: Credit risk, International lending, Sovereign default, Panel data estimation

JEL Classification: F34, G15, G21

Suggested Citation

Staikouras, Sotiris, Multinational Banks, Credit Risk and Financial Crises: A Qualitative Response Analysis. Emerging Markets, Finance and Trade, Vol. 41, pp. 82-106, 2005. Available at SSRN: https://ssrn.com/abstract=679481

Sotiris Staikouras (Contact Author)

City University - Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

ALBA Graduate Business School ( email )

Athinas Ave. & 2A Areos Str.
Vouliagmeni 166 71, Athens
Greece

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