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Multinational Banks, Credit Risk, and Financial Crises : A Qualitative Response Analysis

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  • SOTIRIS K. STAIKOURAS

Abstract

The global financial unrest over the last decade has shifted the attention of banking regulators (Basel II, 2001) in estimating default probabilities for a variety of borrowers. Within a binary choice panel data framework, the current study analyzes various models and cross-examines their performance in identifying financial crises in emerging markets. Using financial ratios, macroeconomic variables, and international factors, the paper identifies a set of warning indicators and discriminates among the three estimators employed. The most important determinants of commercial/official arrears and reschedulings are the debt-to-GDP ratio, inflation, trade liberalization, and the variability of GNP per capita growth. In addition to that, changes in financial flows from foreign investors do affect default frequencies, while external developments are found to be insignificant. Cross-modeling comparison indicates the presence of different exogenous risk factors, depending on the approach employed. Further analysis indicates the presence of heterogeneity, but pertinent estimators fail to perform well. Unlike the fixed- and random-effects estimators, the pooled-logit model yields the minimum number of misclassifications. When past credit performance is taken into account, the significance of some signals is reduced, but the model's misclassification performance is markedly enhanced.

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  • Sotiris K. Staikouras, 2005. "Multinational Banks, Credit Risk, and Financial Crises : A Qualitative Response Analysis," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 41(2), pages 82-106, March.
    • Handle: RePEc:mes:emfitr:v:41:y:2005:i:2:p:82-106
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    2. Elena Kalotychou & Sotiris K. Staikouras, 2005. "The Banking Exposure to International Lending: Regional Differences or Common Fundamentals?," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 14(4), pages 187-214, November.
    3. Kalotychou, Elena & Staikouras, Sotiris K., 2006. "An empirical investigation of the loan concentration risk in Latin America," Journal of Multinational Financial Management, Elsevier, vol. 16(4), pages 363-384, October.
    4. Chueh-Yung Tsao & Chao-Ching Liu, 2012. "Asian Options with Credit Risks: Pricing and Sensitivity Analysis," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(S3), pages 96-115, September.

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