Skip to main content
Article thumbnail
Location of Repository

Credit risk of non-financial companies in the context of financial stability

By Romulus Mircea

Abstract

The aim of this paper is: (i) to examine the determinants of default on bank loans for Romanian non-financial companies, (ii) to evaluate risks to financial stability stemming from the real sector – via the direct channel and (iii) to provide with a stress-testing framework that enables to investigate the impact of various macroeconomic variables on the probability of default. We find that trade arrears, interest burden and receivables cash conversion cycle are the most frequent determinants of default both at short term and long term horizon. We also develop two separate default models for large firms and foreign trade firms. We determine a measure of risk to financial stability – debt at risk – via the direct channel, by multiplying the estimated probability of default with the outstanding bank loans. Debt at risk is concentrated into above average risk firms, but risks to financial stability stemming from the real sector remain at a moderate level. Finally we propose some guidelines on how to build stress-testing scenarios that enables to analyze the impact of various macroeconomic shocks on the probabilities of default. We find that non-financial firms are resilient to potential interest rate shocks, which is consistent with the fact that firms finance their activity through bank loans only to a small extent.Default, logit, financial stability

OAI identifier:

Suggested articles

Citations

  1. (2003). Company accounts based modeling of business failures and the implications for financial stability”, Bank of England, Working paper no.210
  2. (2004). Professional Risk Manager’s Handbook: A comprehensive guide to current theory and best practices”, PRMIA Institute Altman, E.,

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.