MSMEs do not have the technical acumen or the human resource expertise to produce documents which are required by financing institutions.
The most difficulty comes to producing and presenting cash flow statements.
Some potential borrowers cannot compute cash projections
The most difficulty comes to producing and presenting cash flow statements.
Some potential borrowers cannot compute cash projections
Especially Micro and Small Firms, which are managed informally by households, usually do not maintain proper book-keeping and accounting systems.
Banks have to use their own historical loss databases to compute credit metrics such as PD, LGD, EAD,etc.
And most of them have errors
Banks have to use their own historical loss databases to compute credit metrics such as PD, LGD, EAD,etc.
And most of them have errors
Demographic and Geographic indicators can play a role in assessing and evaluating credit risk management, especially during the loan examination phase.
Sectoral Loan Risk Data can be aggregated to compute Risk Measures.
#Saunders FI-Risk management has a chapter dedicated to it
Sectoral Loan Risk Data can be aggregated to compute Risk Measures.
#Saunders FI-Risk management has a chapter dedicated to it
How accurate are Average Risk Measures?
Using Averages as statistical measures of central locations have its own drawbacks.
Accept or reject decision based on Default or No Default Outcomes derived from a binary logistic regression fails in backtesting
Creditscoring is subjective
Using Averages as statistical measures of central locations have its own drawbacks.
Accept or reject decision based on Default or No Default Outcomes derived from a binary logistic regression fails in backtesting
Creditscoring is subjective
Even the prehistoric Basel II Capital Accord originally introduced the application of the Average Pds(probability of defaults) models to compute credit risk capital charges under #FIRB
BIS PDs were usually pro-cyclical and lacked risk transmission signals
bis.org/bcbs/irbriskwe…
BIS PDs were usually pro-cyclical and lacked risk transmission signals
bis.org/bcbs/irbriskwe…
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