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How to Measure the Credit Risk of Housing Loans: Evidence from a Taiwanese Bank

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  • Su-Lien Lu
  • Ming-Chun Wang

Abstract

This paper proposes a formal methodology to gauge the credit risk of housing loans. It estimates the default probability and recovery rate endogenously, which is more detailed than previous studies. Using data from a bank in Taiwan, this study also determines whether securing loans, granting grace periods, and lending to first-time buyers influence the credit risk of housing loans. Results show that unsecured loans and housing loans with grace periods have a higher credit risk because repayment is more uncertain. Housing loans to first-time buyers may distort loan-pricing decisions. Finally, this study estimates four risk factors emphasized by the New Basel Capital Accord, including default probability, loss given default, exposure at default, and maturity.

Suggested Citation

  • Su-Lien Lu & Ming-Chun Wang, 2012. "How to Measure the Credit Risk of Housing Loans: Evidence from a Taiwanese Bank," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 122-138, July.
    • Handle: RePEc:mes:emfitr:v:48:y:2012:i:0:p:122-138
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