Abstract
We develop a banks specific integrated rating, tailored incorporating the various heterogeneity dimensions characterizing financial institutions (see Mantovani et al., Int Res J Appl Finance IV:458–489, 2013 and Mantovani et al., J Bus Econ Finance 3:18–49, 2014 regarding the heterogeneity risk analysis in corporate firms), named bank tailored integrated rating (BTIR). The approach is inherently coherent with the challenging frontier of forecasting tail risk in financial markets (De Nicolò and Lucchetta, J Appl Econ 32(1):159–170, 2017) since it considers the downside risk in the theoretical framework. The innovation consists in using the integrated rating (IR) with the pre-selection of the variables through a statistical procedure that takes into account the characteristics of risk and greater heterogeneity of the banks. A Vector Autoregressive Model (VAR) is only a first simple application proposal.
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Appendix
Appendix
Where Bank performance indicator is
(i) is Asset Quality; (ii) Capital Ratios; (iii) Operations Ratios; (iv) Liquidity Ratios; (v) Structure Ratio.
Coefficients | St. errors | ||
|---|---|---|---|
Intercept | 21.1780*** | 1.5268 | |
i | NPL/Gross loans | −0.1550*** | 0.0353 |
NPL/Tot. assets | 1.1367*** | 0.0707 | |
NCO/Avg gross loans | 0.2954*** | 0.0872 | |
NCO/Net Inc. bef. Ln Lss Prov. | −0.0028*** | 0.0008 | |
Impaired loans/Equity | −0.0789*** | 0.0038 | |
ii | Equity/Net loans | −0.0625*** | 0.0176 |
Equity/Tot. liabilities | 4.5427*** | 0.3062 | |
iii | Profit margin | 0.1510*** | 0.0115 |
Net Int. Rev./Avg ass. | −0.3912* | 0.1613 | |
Non Int. Exp. Avg Ass. | 1.2895*** | 0.2909 | |
Pre-Tax Op. Inc./Avg ass. | 3.2931*** | 0.4963 | |
ROA | 6.9032*** | 0.5271 | |
Cost to income | −0.0355† | 0.0196 | |
iv | Recurring earning power | −1.3532* | 0.6156 |
Net loans/Tot. assets | −0.0544*** | 0.0107 | |
v | Solvency | −6.8087*** | 0.4127 |
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Arzu, D., Lucchetta, M., Mantovani, G.M. (2018). The Bank Tailored Integrated Rating. In: Corazza, M., Durbán, M., Grané, A., Perna, C., Sibillo, M. (eds) Mathematical and Statistical Methods for Actuarial Sciences and Finance. Springer, Cham. https://doi.org/10.1007/978-3-319-89824-7_11
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DOI: https://doi.org/10.1007/978-3-319-89824-7_11
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