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Operational drivers affecting credit risk of mutual guarantee institutions

Operational drivers affecting credit risk of mutual guarantee institutions Purpose – The purpose of this paper is to investigate the drivers influencing the risk of default on mutual guaranteed loans. The authors aim to verify whether default is influenced by the specific business policies of mutual guarantee institutions (MGIs) and to recommend guidelines for directing their operating management. Design/methodology/approach – The authors analyse the guaranteed portfolios of 19 Italian MGIs and investigate the determinants of the defaulted positions at the end of June 2011. The sample consists of 167,777 guaranteed loans, of which 11,349 are in default. Using regression models, we identify the variables related to the business model of MGIs that are significantly associated with default on their positions. Findings – The defaulted positions of MGIs are significantly correlated with the type of issued guarantees. This condition should be considered in defining product and price policies. Practical implications – The authors identify some critical issues in the risk‐taking processes of MGIs. The tested hypothesis highlights the opportunities for the optimisation of guaranteed loan portfolios, which is necessary for reducing the profitability/liquidity pressures of these financial institutions and enhancing their efficiency as instruments for mitigating the effects of credit rationing and promoting the revitalisation of small‐and medium‐sized enterprises. Originality/value – The results are based on an original and reserved dataset, which is not available in public financial statements or public statistics, but is collected directly from the MGIs that are part of the study. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Risk Finance Emerald Publishing

Operational drivers affecting credit risk of mutual guarantee institutions

The Journal of Risk Finance , Volume 15 (3): 19 – May 19, 2014

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References (83)

Publisher
Emerald Publishing
Copyright
Copyright © 2014 Emerald Group Publishing Limited. All rights reserved.
ISSN
1526-5943
DOI
10.1108/JRF-12-2013-0087
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to investigate the drivers influencing the risk of default on mutual guaranteed loans. The authors aim to verify whether default is influenced by the specific business policies of mutual guarantee institutions (MGIs) and to recommend guidelines for directing their operating management. Design/methodology/approach – The authors analyse the guaranteed portfolios of 19 Italian MGIs and investigate the determinants of the defaulted positions at the end of June 2011. The sample consists of 167,777 guaranteed loans, of which 11,349 are in default. Using regression models, we identify the variables related to the business model of MGIs that are significantly associated with default on their positions. Findings – The defaulted positions of MGIs are significantly correlated with the type of issued guarantees. This condition should be considered in defining product and price policies. Practical implications – The authors identify some critical issues in the risk‐taking processes of MGIs. The tested hypothesis highlights the opportunities for the optimisation of guaranteed loan portfolios, which is necessary for reducing the profitability/liquidity pressures of these financial institutions and enhancing their efficiency as instruments for mitigating the effects of credit rationing and promoting the revitalisation of small‐and medium‐sized enterprises. Originality/value – The results are based on an original and reserved dataset, which is not available in public financial statements or public statistics, but is collected directly from the MGIs that are part of the study.

Journal

The Journal of Risk FinanceEmerald Publishing

Published: May 19, 2014

Keywords: SMEs; Credit risk; Bank loans; Default; Guarantees; Mutual guarantee institutions

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