Credit risk variables

  • What are the determinants of credit risk?

    We tried to assess the extent to which banks are exposed to various types of risk and the quality of the systems used for managing these risks.
    For this purpose, we identified three different types of determinants of credit risk: (1) environmental risk, (2) credit appraisal measurements, and (3) market risk analysis..

  • What are the major factors of credit risk?

    Bank-specific factors, such as management efficiency, profitability, credit growth, and bank size, are important determinants of credit risk.
    Asfaw and Veni (2015) and Zheng et al. (2018) conducted studies that demonstrated a negative correlation between bank profitability and credit risk..

  • What are the variables of credit risk?

    Those include the financial health of the borrower, the severity of the consequences of a default (for both the borrower and the lender), the size of the credit extension, historical trends in default rates, and a variety of macroeconomic considerations, such as economic growth and interest rates..

Lenders look at a variety of factors in attempting to quantify credit risk.Three common measures are probability of default, loss given default, and exposure  What Is Credit Risk?How Credit Risk Is MeasuredLoss Given Default

How credit risk modeling is used in banking industry?

Credit risk modeling is widely adopted in banking industry for multiple applications:

  • from underwriting
  • account management (e.g. extending line of credits), credit allowance ( CECL under GAAP and IFRS-9 ), stress testing ( CCAR) and regulatory capital calculation ( Basel II ).
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    What is variable selection in credit risk modeling?

    We can find answers in the next step of the credit risk modeling process – the variable selection process.
    The mining view created as the result of the data preparation process is a multi-dimensional customer signature that’s used to discover potentially predictive relationships and test the strength of those relationships.


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