Risk/Return Analysis on Credit Exposure: Do Small Banks Really Apply a Pricing Risk-Based on Their Loans?

Stefano Bonini () and Giuliana Caivano ()
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Stefano Bonini: Accenture Management Consulting
Giuliana Caivano: Accenture Management Consulting

A chapter in Mathematical and Statistical Methods for Actuarial Sciences and Finance, 2018, pp 179-184 from Springer

Abstract: Abstract In the current economic scenario, an efficient and effective credit underwriting based on a pricing adjusted to the internal credit risk policies is a pillar for the existence of the banks. Despite the recent Regulator's indications and the advanced methodologies available, small banks prefer to adopt less structured for assessing the risk profile of their portfolio. Our study empirically analyzes a Small Bank portfolio of 16,216 loans (Retail and Corporate) underwritten in the last 5 years (2013–2017) and try to investigate the nature of the link between borrower credit worthiness and the effective price applied to the loans. The study finds out that the link between borrower credit worthiness and the price applied is opposite to what expected (the higher credit quality, the lower interest rate applied to loans).

Keywords: Risk management; Credit risk; Pricing; Strategic policies; Credit underwriting; Credit policies; Financial crisis (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-319-89824-7_33

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DOI: 10.1007/978-3-319-89824-7_33

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