From Default Rates to Default Matrices: a complete measurement of Brazilian banks' consumer credit delinquency

Despite the manifold utilities of monitoring credit default rates, little attention is usually devoted to the underlying default definition. This paper proposes working simultaneously with different default severities, related to several past-due ranges, by means of transition matrices (to be named default matrices). In this way, default, as well as recovery, are depicted in a multidimensional way with the purpose of avoiding missing relevant information. The challenge lies on performing comparisons between default matrices, which requires specific metrics. In this paper, the default matrices are built to measure consumer credit delinquency at four large Brazilian banks. The study is able to draw relevant information from comparisons between estimations techniques, between default criteria, between banks and over time, as well as with recent applied literature on matrices of rating agencies.