Modelling the probability of asset value covenant violations in shipping bank loans

Nikos D. Kagkarakis and Dimitris Tsouknidis

International Journal of Banking, Accounting and Finance, 2024, vol. 14, issue 3, 324-346

Abstract: This paper aims to model the probability of a borrower violating an asset value covenant in a shipping bank loan agreement, where the main collateral (the vessel) exhibits very high price volatility. We estimate a panel data regression model using the largest dataset of shipping bank loans examined to date. The results reveal that loan-specific variables, particularly the amount of loan, advance ratio, and existence of a holding company guarantee, are the most important factors affecting the probability of observing an asset value covenant violation. These results are important for ship-lending financial institutions because: 1) vessel prices serve as the main collateral in bank loan agreements; 2) vessel prices are significantly larger in magnitude and much more volatile when compared to other widely examined asset-backed loan agreements, such as mortgages.

Keywords: bank loans; asset value covenant; credit scoring models; shipping. (search for similar items in EconPapers)
Date: 2024
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