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Consumer Banking and Credit Risk

Rodrigo Alfaro (), Daniel Calvo C. and Daniel Oda

Journal Economía Chilena (The Chilean Economy), 2009, vol. 12, issue 3, 59-77

Abstract: Following Jara and Oda (2007), we consider a group of Chilean banks specializing in consumer loans. Taking the dynamics of the group as a whole, we propose a credit risk model that is based on loan loss provisions. Using accounting ratios, we show that a model for this purpose is dynamic and highly non-linear. Our empirical results show that the banking aggregates loan loss provisions, write-offs, and total loans can be modelled for this group of banks using a small number of macroeconomics variables. Actually, we conclude that the output gap is a strong factor in the model, and that the model performs well when only this external factor is considered.

Date: 2009
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