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Loan Portfolio Conditional Loss Estimation Using an Error-Correcting Macroeconometric Model

Author

Listed:
  • Albert H. de Wet
  • Reneé van Eyden
  • Rangan Gupta

    (University of Pretoria, South Africa)

Abstract

Credit portfolio managers must be able to identify the interdependencies between exposures in a portfolio and be able to relate credit risk to tangible portfolio effects on which action could be taken. To these ends, this paper draws on the macroeconometric vector error correcting model (VECM) developed by De Wet et al. (2009) and applies the proposed methodology of Pesaran, Schuermann, Treutler and Weiner (2006) to a dummy credit portfolio within the South African economy. It illustrates the ability to link macroeconomic factors to a credit portfolio, that scenario analysis can be performed and that portfolio management and value enhancing applications can be pursued.

Suggested Citation

  • Albert H. de Wet & Reneé van Eyden & Rangan Gupta, 2010. "Loan Portfolio Conditional Loss Estimation Using an Error-Correcting Macroeconometric Model," The African Finance Journal, Africagrowth Institute, vol. 12(2), pages 28-49.
    • Handle: RePEc:afj:journl:v:12:y:2010:i:2:p:28-49
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    Cited by:

    1. Melisso Boschi, 2012. "Long- and short-run determinants of capital flows to Latin America: a long-run structural GVAR model," Empirical Economics, Springer, vol. 43(3), pages 1041-1071, December.

    More about this item

    Keywords

    Credit portfolio modelling; macroeconometric correlation model; economic capital; scenario analysis; default threshold;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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