Model for Analysing Credit Risk in the Enterprise Sector

Abstract

When banks’ overall risk is evaluated, their credit risk exposure to the enterprise sector is a key element. In analyses of banks’ credit risk in the enterprise sector, both a macroeconomic and a business economics approach are generally applied, the latter based on corporate earnings, liquidity and financial strength. In this article, we present a new model that predicts enterprise-specific bankruptcy probabilities. On the basis of these probabilities, both aggregate bankruptcy probabilities and the magnitude of accompanying losses for banks can be estimated.