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Credit Risk Modelling of Mortgage Loans in the Supervisory Stress Test of the Magyar Nemzeti Bank

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  • Andras Viktor Szabo

    (Magyar Nemzeti Bank)

Abstract

The study aims to develop a model that can estimate potential credit risk losses for housing and home equity loans using both macro and micro data, can be applied uniformly to all banks and takes into account the new accounting standards (IFRS 9). The model is based on a deal-level database for several Hungarian credit institutions, covering an entire business cycle (2004-2018). It uses economic indicators that strengthen risk sensitivity while also including transaction characteristics that mitigate procyclicality. Modelling in a two-step process allows risk groups to be created during forecasting in accordance with various credit characteristics. The results show that the evolution of employment has a stronger effect on riskier groups which potentially have only ad-hoc employment, while net wealth was not even among the explanatory variables for the group containing the best debtors, who presumably rely more on stable earned income.

Suggested Citation

  • Andras Viktor Szabo, 2022. "Credit Risk Modelling of Mortgage Loans in the Supervisory Stress Test of the Magyar Nemzeti Bank," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 21(1), pages 56-94.
    • Handle: RePEc:mnb:finrev:v:21:y:2022:i:1:p:56-94
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    References listed on IDEAS

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    More about this item

    Keywords

    time series modelling; econometric forecasting; bank; stress test; PD; household credit; IFRS 9;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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