The Role of Non-financial Factors in Internal Credit Ratings

Martin Weber, Jens Grunert and Lars Norden

No 3415, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Internal credit ratings are expected to gain in importance because of their potential use for determining regulatory capital adequacy and banks? increasing focus on the risk-return profile in commercial lending. Therefore, the components of internal credit ratings merit not only a qualitative but also a quantitative analysis. Whereas the eligibility of financial factors as inputs for credit ratings is widely accepted, the role of non-financial factors remains ambiguous. Analysing credit file data from four major German banks we find evidence that the combined use of financial and non-financial factors leads to a more accurate prediction of current and future default events than the single use of each of these factors respectively.

Keywords: Credit risk; Credit ratings; Debt default; Probit analysis (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2002-06
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (3)

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Journal Article: The role of non-financial factors in internal credit ratings (2005)
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