Modelling the recovery outcomes for defaulted loans: A survival analysis approach

Jean-Pierre Fenech (), Ying Kai Yap and Salwa Shafik

Economics Letters, 2016, vol. 145, issue C, 79-82

Abstract: This study investigates the determinants affecting the recovery outcome for bank loans when firms default. We develop survival analysis models, explaining the transition hazards of bank loan recoveries varying over time within the conditional probability of firms either fully recovering or not. Both loan and recovery covariates are critical for recovery outcomes. Furthermore, we identify a hump-shaped hazard function peaking at 23 months from default date followed by a drop. The log–logistic parametric model describes the best fit. Our results demonstrate the significant covariates affecting loan recovery rates, highlighting the importance for banks to structure their loans in the best possible way.

Keywords: Recovery rates; Survival analysis; Credit risk (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:145:y:2016:i:c:p:79-82

DOI: 10.1016/j.econlet.2016.05.015

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