Modelling Credit Risk in the Enterprise Sector – Further Development of the SEBRA Model

Abstract

Since 2001, Norges Bank has used an empirical model, the SEBRA model2, to estimate bankruptcy probabilities for Norwegian limited companies. The model is also used to estimate banks’ expected losses on loans to enterprises in different industries. This article presents two new versions of the model: an extended version of the original model, and a basic version which makes less use of variables which correlate with the size of the enterprise. We show that the basic version is better suited to predicting and projecting banks’ overall loan losses. However, the accuracy rate for bankruptcies is slightly lower at enterprise level. The extended version is better suited to analyses where the emphasis is more on bankruptcies than on aggregate loan losses.