Valuating consumer credit portfolios

Pedro Piccoli

Latin American Journal of Central Banking (previously Monetaria), 2022, vol. 3, issue 3

Abstract: This paper proposes a model that associates borrower credit risk with the cash flow method to assess the economic value of a consumer credit portfolio. A Monte Carlo simulation applying the method to an illustrative loan reveals that the lending standards of the institution, captured in the model by the expected and unexpected losses of the contract according to Basel II Internal Rating-Based Approach, is a key driver of the portfolio's intrinsic value, lending support to the evidence that a bank's credit policy and a bank's valuation are associated.

Keywords: Loan valuation; Bank valuation; Credit risk; Loan losses (search for similar items in EconPapers)
JEL-codes: E51 G20 G21 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:lajcba:v:3:y:2022:i:3:s2666143822000217

DOI: 10.1016/j.latcb.2022.100067

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Latin American Journal of Central Banking (previously Monetaria) is currently edited by Manuel Ramos-Francia

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