The Saudi Government’s 2030 Vision directs local banks to increase and improve credit for the Small and Medium Enterprises (SMEs) of the economy (Jadwa, 2017). Banks are, however, still finding it difficult to provide credit for small businesses that meet Basel’s capital requirements. Most of the current credit-risk models only apply to large corporations with little constructed for SMEs applications (Altman and Sabato, 2007). This study fills this gap by focusing on the Saudi SMEs perspective. My empirical work constructs a bankruptcy prediction model based on logistic regressions that cover 14,727 firm-year observations for an 11-year period between 2001 and 2011. I use the first eight years data (2001-2008) to build the model and use it to predict the last three years (2009-2011) of the sample, i.e. conducting an out-of-sample test. This approach yields a highly accurate model with great prediction power, though the results are partially influenced by the external economic and geopolitical volatilities that took place during the period of 2009-2010 (the world financial crisis). To avoid making predictions in such a volatile period, I rebuild the model based on 2003-2010 data, and use it to predict the default events for 2011. The new model is highly consistent and accurate. My model suggests that, from an academic perspective, some key quantitative variables, such as gross profit margin, days inventory, revenues, days payable and age of the entity, have a significant power in predicting the default probability of an entity. I further price the risks of the SMEs by using a credit-risk pricing model similar to Bauer and Agarwal (2014), which enables us to determine the risk-return tradeoffs on Saudi’s SMEs.

Concerns about the state of public finances in the main advanced economies have increased as a result of the global financial and economic crisis that started in late 2007 - 2008. The fiscal solvency of several euro area peripheral countries has been put under the spotlight of the market participants who started to believe that a sovereign default was likely to happen in an advanced economy member of the euro area. This thesis seeks to investigate the sovereign risk in the euro area countries during the period before, during and after the crisis by focusing on the sovereign bond and credit default swaps spreads and the factors that drive them. In Chapters 2, we investigate the determinants of the government bond yields and sovereign credit default swaps. In our analysis for the government bond yields we find that the macroeconomic fundamentals used in our analysis are highly significant for the periphery countries, while they are less or not significant at all for the core euro area countries. We also find evidence that during the crisis the fluctuations of the government bond yields are not only explained by the macroeconomic fundamentals but also explained by factors related to the uncertainty in the euro area. In Chapter 3, we employ the panel cointegration approach in order to investigate the macroeconomic and financial indicators that impacted the sovereign credit default swaps in the crisis period using data from October 2008 until December 2014. We provide fresh evidence that the financial indicators, proxied by the iTraxx index as well as liquidity indicators, proxied by the bid-ask had a dominant role in explaining the CDS in almost all countries. In Chapter 4, in regard to the study of the price discovery relationship between the government bond yields and sovereign CDS, we suggest the use of cointegration methodology and also test for a structural break using the Gregory and Hanson approach to investigate the linkages between the two instruments. The structural break test suggests that the relation changed during the crisis and that the price discovery took place in the CDS market. Finally, in Chapter 5, we investigate the main factors causing the sovereign defaults. We use a panel of 99 countries to assess the impact that various macroeconomic and political risk indicators have on sovereign defaults on foreign currency bank loans, foreign currency bonds and local currency debt, utilizing an extended database constructed by the Bank of Canada. Our results suggest that the favorable economic indicators, lower debt levels, and higher political stability all reduce the likelihood of default. We also find that the capital outflows restrictions are positively associated with higher probability of default.

We analyze the nature of sovereign credit risk for selected Asian and European countries through a set of sovereign CDS data for an eighty-year period that includes the episode of the 2008-2009 financial crisis. Our principal component analysis results suggest that there is strong commonality in sovereign credit risk across countries after the crisis. The regression tests show that the commonality is linked to both local and global financial and economic variables. Besides, we also notice intriguing differences in the sovereign credit risk behavior of Asian and European countries. Specifically, we find that some variables, including foreign reserve, global stock market, and volatility risk premium, affect the of Asian and European sovereign credit risks in the opposite direction. Further, we assume that the arrival rates of credit events follow a square-root diffusion from which we build our pricing model. The resulting model is used to decompose credit spreads into risk premium and credit-event components.

None

The wellness of credit risk has great influence on the Value of Mortage-Backed Securities (MBS), but there isn¡¦t any valuator to supervise and to estimate these securities-issued institutions in Taiwan. For earning the trust of the masses, these institutions must have great abilities to control credit risk in an acceptable degree, and then the people will be willing to invest in these MBS. This research makes use of data totaling 20,576 cases (17,425 normal cases and 3,151 default cases) from a certain domestic bank, Bank P, and constructs the Logistic Regression Model to steer the substantial evidence research. With the right prediction of 96.7% in normal, 85.4% in default, and 95% in whole, we find that we can use the borrower¡¦s age, occupation, the object of collateral, the use of collateral, the loan purpose, the year of loan, the line of credit, the category of interest, the interest rate, the source of case and the branch office as key factors for credit risk appraisal of reference provided to banks. In this study, we will determine whether interest rate is the key factor for default, followed by occupation. The other two factors, the category of interest and the source of case, which are not popularly talked about in related studies, are confirmed as the remarkable influence factors for credit risk. The other important discovery is that the influence of the loan condition and the specialities of the collateral have greater impact on credit risk than the personality of the borrower. This research provides some reference for financial institutions on credit evaluation, and makes up a good model for credit control. For previously issued MBS, this research also provides some academic basis for future adaptation.

none

The New Basel Capital Accord (Basel II) provides added emphasis to the development of portfolio credit risk models. An important regulatory change in Basel II is the differentiated treatment in measuring capital requirements for the corporate exposures and retail exposures. Basel II allows agricultural loans to be categorized and treated as the retail exposures. However, portfolio credit risk model for agricultural loans is still in their infancy. Most portfolio credit risk models being used have been developed for corporate exposures, and are not generally applicable to agricultural loan portfolio. The objective of this study is to develop a credit risk model for agricultural loan portfolios. The model developed in this study reflects characteristics of the agricultural sector, loans and borrowers and designed to be consistent with Basel II, including consideration given to forecasting accuracy and model applicability. This study conceptualizes a theory of loan default for farm borrowers. A theoretical model is developed based on the default theory with several assumptions to simplify the model. An annual default model is specified using FDIC state level data over the 1985 to 2003. Five state models covering Iowa, Illinois, Indiana, Kansas, and Nebraska areestimated as a logistic function. Explanatory variables for the model are a three-year moving average of net cash income per acre from crops, net cash income per cwt from livestock, government payments per acre, the unemployment rate, and a trend. Net cash income generated by state reflects the five major commodities: corn, soybeans, wheat, fed cattle, and hogs. A simulation model is developed to generate the stochastic default rates by state over the 2004 to 2007 period, providing the probability of default and the loan loss distribution in a pro forma context that facilitates proactive decision making. The model also generates expected loan loss, VaR, and capital requirements. This study suggests two key conclusions helpful to future credit risk modeling efforts for agricultural loan portfolios: (1) net cash income is a significant leading indicator to default, and (2) the credit risk model should be segmented by commodity and geographical location.

none

We analyze the nature of sovereign credit risk for selected Asian and European countries through a set of sovereign CDS data for an eighty-year period that includes the episode of the 2008-2009 financial crisis. Our principal component analysis results suggest that there is strong commonality in sovereign credit risk across countries after the crisis. The regression tests show that the commonality is linked to both local and global financial and economic variables. Besides, we also notice intriguing differences in the sovereign credit risk behavior of Asian and European countries. Specifically, we find that some variables, including foreign reserve, global stock market, and volatility risk premium, affect the of Asian and European sovereign credit risks in the opposite direction. Further, we assume that the arrival rates of credit events follow a square-root diffusion from which we build our pricing model. The resulting model is used to decompose credit spreads into risk premium and credit-event components.

Thesis (Ph.D.)--Hong Kong University of Science and Technology, 2007. / Includes bibliographical references (leaves 101-104). Also available in electronic version.