Expected Loss: Dynamic Panels for Quantifying Credit Risk
DOI:
https://doi.org/10.32719/25506641.2021.9.7Keywords:
credit risk, quantitative risk management, banking, dynamic panels, expected lossAbstract
The global financial crisis that began in 2007, has marked a before and after in contemporary risk management, not from the point of view of developing risk management, but from
the need to apply what has been developed, and to use it in a timely manner both by financial institutions as well as by regulators and the State. According to Dionne (2013), the study
of risk management has been developed since the end of the Second World War, so it has had more than 50 years to evolve in relation to quantitative and scientific techniques. This
article proposes the use of dynamic panels for the aggregate quantification of credit risk, using the Macro Credit Scoring methodology; an econometric model is built to measure the
credit risk of a banking system based on economic growth and the financial profile of banks (which reflects their risk profile). For the methodology, what Arellano-Bond proposed was
used to control the endogeneity between credit risk and economic growth, estimating the expected loss measure as a final product. It was determined that the credit risk coverage is
adequate in Bolivia and the applicability of the proposed methodology is demonstrated.
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