Comparative Analysis of Credit Risk and Bank Efficiency in Developed and Emerging Countries

This study aims to investigate the relationship between credit risk and bank efficiency in developed and emerging countries using distance to default methodology. The research will compare credit risk measures in the US, UK, and BRICS countries. The study will extend the research by adding the firms in the BRICS to find the relation between the developed countries as well as the emerging countries. The research will also analyze the credit risk and bank efficiency of the banks in the developed countries and the emerging countries. The study will provide insights into the credit risk and bank efficiency of the banks in different countries.

Model format present in the proposal given by the client. The highlighted part was
copied form the reference given by the client.
B Imbierowicz and C Rauch (2014) - The relationship between the liquidity risk and the
credit risk in Banks
This study explores the relationship between the two major sources of default risk i.e.
liquidity and credit risk during the period 1998-2010 and the effect of this relationship on the
Probability of Default (PD).Their findings do not reflect an economically meaningful
relationship between the two types of risks but they certainly influence the (PD).
J Pereira, G Sorwar and M Nurullah (2018) – What drives corporate CDS spreads? A
comparison across US, UK, and EU firms.
This paper investigates the CDS (Credit Default Swaps) spreads for the firms in UK, US and
EU firms. Here the situation of the firms before the financial crisis, during the financial crisis
as well as the post financial crisis period was investigated based on the market variables and
accounting spreads. Based on the research the authors revealed that the predictive power of
the risk factors are reduced during the financial crisis as well as the post crisis periods and
also the market based variables are increased. On the other hand my study also quite similar
to his work, but want to slightly extend the research by adding the firms in the BRICS to find
the relation between the developed countries as well as the emerging countries (Pereira,
Sorwar and Nurullah, 2018).
Ryan Stever (2007) - Bank size credit and the sources of bank market risk
This study examines the risks involved in the bank sectors. To find the various risk involved
in the bank sector, the author analysed the equity as well as the loan portfolio characters of
the firms. Equity betas of the small banks are too small (nearly 2 to 5 times smaller) when
compared with the large banks. So the author rejected the small banks in this study. Also the
author described about the relation between the size of the bank and the credit risk,
performance of the bank. In my study I am going to research about the relationship among
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the credit risk and the bank efficiency of the banks in the developed countries and the
emerging countries (BRICS) (Stever, 2007).
Simone Varotto (2011) - Liquidity Risk, Credit Risk, Market Risk and Bank Capital
This research investigates about the various risk involved in the banks sectors like credit risk,
liquidity risk and market risk and capital risk etc. In this research the author takes the sample
data of the banks in US. Here the banks are selected from the various maturities and credit
ratings etc. Also author considered the various risks and performance of the banks in the US
during the financial crisis period (2007 – 2009). This is where my research will be different
by investigating the various risks and performance of the banking system in the developed
countries (US, UK) and the emerging countries (BRICS). But the author only considered the
banks in the US (Varotto, 2011).
J Li and G Zinna (2017) - How Much of Bank Credit Risk Is Sovereign Risk? Evidence
from Europe
This paper deals about the sovereign risk analysis on the bank sectors. For this research the
author only considered the banks in the Europe. Also the author considered the time period as
2008 to 2015. During the financial crisis as well as the after the financial crisis. Also the
author say that, the sovereign risk are the bigger risk involved in the banking sectors. Also the
author collected data from the various types of the banks having the various credit rating and
capital capacities. On other hand my research is all about the credit risk and bank
performance of the banks in US, UK and the BRICS (Li and Zinna, 2017).
S Pourdarab, A Nadali and H Nosratabadi (2011) - A Hybrid Method for Credit Risk
Assessment of Bank Customers
This paper deals with the process of developing the hybrid methodology for assessing the
credit risk involved in the bank. According to the author the assessment of the credit risk
parameters in the bank sector was the very important process. Because these factors directly
impacts on the performance of the bank. In this research author used “Kolmogorove-Smirnov
Test” for finding the distribution of the financial ratios of the collected datasets. Then the
effective system was founded by using the DEMATEL method. Then the fuzzy system was
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employed to assess the credit risk involved in the banks from the effective financial ratio
results developed from the previous stages. In my project I am going to use the distance to
default methods for assessing the credit risks and effectiveness of the banks (Pourdarab,
Nadali and Nosratabadi, 2011).
J Frye and E Pelz (2008) - BankCaR (Bank Capital-at-Risk): A credit risk model for US
commercial bank charge-offs
This study explains about the BankCaR model. It was the credit risk forecasting model used
to forecast the distribution of the charge-offs of the commercial banks in US. In this
distribution the author only considered about the systematic factors. In this research the
author proves the effective functioning of the BankCaR by testing this model to find the
credit risk and capital of the banks in US. And also the author successfully proved that. In
this model the credit risk and captal of the banks were analysed by comparing the details of
the banks with the standard or benchmarks. In my project I am going to compare the credit
risk as well as the bank efficiency of the banks in the BRICS countries with the banks in US,
UK (Frye and Pelz, 2008).
Y Shan (2017) - Systemic Risk and Credit Risk in Bank Loan Portfolios
This papers investigates the relation between the credit risk and the systematic risks in the
bank sector. Here the author used the “complementary measures of systemic risks” in this
investigation. And also the author revealed that the systemic risks of the banks increases with
the increase of the credit risk. On other hand my project deals about the assessing the credit
risk and the bank efficiency (Shan, 2017).
D Pokidin (2018) - National Bank of Ukraine Econometric Model for the Assessment of
Banks’ Credit Risk and Support Vector Machine Alternative
This paper analyse the evolution of the credit risk assessing model form its origin. Here the
author explained the various credit risk assessing models like “Altman’s simple z-model” to
the latest ANN model. In this paper the SVM (Support Vector Machine) technique was
mainly concentrated. According to the authors perception the SVM method was the
alternative for all other methods to find the credit risk and bank efficiency. In my project I am
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going to use the distance to default methodology for measuring the credit risk in the bank
sectors in US, UK and BRICS (Pokidin, 2018).
J Li and G Zinna (2014) - On Bank Credit Risk: Systemic or Bank Specific? Evidence for
the United States and United Kingdom
This study investigate the credit risk and performance measure of the bank systems in the US
and UK. In this research work author developed the multivariate credit risk model for
research about the credit risk relations between the banks in UK and US. Based on the
research the author founded that the credit risk and sovereign risks are high in the banks in
UK. In my research I am going to extend the sample size by including the BRICS countries
(Li and Zinna, 2014).
T Moloi (2017) - The nature of credit risk information disclosed in the risk and capital
reports of the top-5 South African banks
This paper describes the CRDMT method. This methods was used to identify the credit risk
and the bank efficiency in the banks in South Africa. In this papers the author describes the
six important areas like banks own description regarding to the credit risk and the techniques
used to analyse the credit risk and strategy to minimize the credit risk etc. Also the author
revealed that the banks in South Africa meets the proposed criteria by the CRMDT. On other
hand in my research the distance to default method was used to find the credit risk and the
bank efficiency in the banks in the developed countries as well as the emerging countries
(Moloi, 2017).
U Subramanian (2015) - Corporate governance, Credit risk, Performance and its
determinants of banks in BRICS countries & Applications for banks in Brunei
Darussalam
This paper explores about the relationship between the corporate governance as well as the
credit risk in the BRICS countries. In this paper the author also explained about the relation
between the above stated factors and the banks performance. This research work the relevant
data was collected from the Alliance Bernstein. In my research I am going to find the same
thing in this work, but I am going to use the credit risk measures in the banks in UK and US
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as the benchmark for finding the credit risk and bank efficiency in the banks in developing
countries (Subramanian, 2015).
Z Jovic (2017) - Determinants of Credit Risk – The Case of Serbia
This paper takes about the different systematic and specific factors of the Serbian banks. This
mainly explains about the VAR model (vector auto regression) and other models like logit
and probity models during the period from 2008 to 2014. These models used for avoiding the
different problems like bad business and financial situations of the Serbian banks. And also
for estimating the good properties or assets by the clients for reducing the risks (Jovic, 2017).
J Shkodra and H Ismajli (2017) - Determinants of the credit risk in developing countries:
a case of Kosovo banking sector
This paper explains about the importance of the non-performing loans (NPL). The main
purpose of NPL is to classifying the factors about the commercial banks in the Kosovo
regions. This paper also explains the different models to determine the credit risk of banks
from the Kosovo regions during the period 2006 to 2015. Among the model the major model
is regression model that suggest different variables like credit rate, deposit rate and variables
of solvency etc. (Shkodra and Ismajli, 2017).
B Dao and H Pham (2015) - Corporate Governance and Bank Credit Risk: Default
Probability, Distance to Default
This paper analyses the default distance and the probability of the bank credit risk. In this
paper, the author described the risks in the banking sector. And here the risk is analysed
through the default probability of the loan. In this paper also described the analysis of
corporate governance. These risks are analysed mostly in the commercial banks. This paper
explores the relationship between the default probability of the banks due to their credit risks
and corporate governance structures. Here also delivered the analysis of commercial banks
for certain years. Also produced the characteristics of the banks (Dao and Pham, 2015).
Z Saadaoui (2008) - Capital standards and banking stability in emerging countries: an
empirical approach - Munich Personal RePEc Archive
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This papers explains about the Utilizing a non-parametric approach in different banking
sectors, this approach also moderates results, since it appears glaringly evident that greater
similarity of banks to capital principles actuated greater gainfulness to these establishments,
limited their use and reinforced their capacity to support foreseen misfortunes amid trouble
scenes. The outcomes demonstrate that in rising nations, in opposition to created nations,
higher adjustment to capital measures was not trailed by a change in credit quality. The
capacity of this prudential component in accomplishing the banks focus in rising nations.
Managing an account is difficult during the period because of lessening credit chance.
F Govori (2013) - The performance of commercial banks and the determinants of
profitability: Evidence from Kosovo - Munich Personal RePEc Archive
This paper explains the different perspectives of Kosovo banks like the banking performance,
the profitability of the banks, return rate, non-performing loans and another margin of
interests. Among the banks, Kosovo’s banks' performance is to complete one for the credit
risk in a certain region. Because the liquidity ratio is high only in those commercial banks.
Because those banks are using distance to default method. Using this method also proposes
the non-payable taxes, expenses, and equity multipliers are easily addressed using the model
(Govori, 2013).
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Reference
Dao, B. and Pham, H. (2015). Corporate Governance and Bank Credit Risk: Default
Probability, Distance to Default. SSRN Electronic Journal.
Frye, J. and Pelz, E. (2008). BankCaR (Bank Capital-at-Risk): A Credit Risk Model for US
Commercial Bank Charge-Offs. SSRN Electronic Journal.
Govori, F. (2013). The performance of commercial banks and the determinants of
profitability: Evidence from Kosovo - Munich Personal RePEc Archive. [online]
Mpra.ub.uni-muenchen.de. Available at: http://mpra.ub.uni-muenchen.de/46824/ [Accessed
16 Aug. 2018].
Jovic, Z. (2017). Determinants of credit risk - the case of Serbia. Ekonomski anali, 62(212),
pp.155-188.
Li, J. and Zinna, G. (2014). On Bank Credit Risk: Systemic or Bank Specific? Evidence for
the United States and United Kingdom. Journal of Financial and Quantitative Analysis, 49(5-
6), pp.1403-1442.
Li, J. and Zinna, G. (2017). How Much of Bank Credit Risk Is Sovereign Risk? Evidence
from Europe. SSRN Electronic Journal.
Moloi, T. (2017). The nature of credit risk information disclosed in the risk and capital
reports of the top-5 South African banks. Banks and Bank Systems, 11(3), pp.87-93.
Pereira, J., Sorwar, G. and Nurullah, M. (2018). What drives corporate CDS spreads? A
comparison across US, UK and EU firms. Journal of International Financial Markets,
Institutions and Money.
Pokidin, D. (2018). National Bank of Ukraine Econometric Model for the Assessment of
Banks’ Credit Risk and Support Vector Machine Alternative. Visnyk of the National Bank of
Ukraine, 2015(234), pp.52-72.
Pourdarab, S., Nadali, A. and Nosratabadi, H. (2011). A Hybrid Method for Credit Risk
Assessment of Bank Customers. International Journal of Trade, Economics and Finance,
pp.125-130.
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Saadaoui, Z. (2008). Capital standards and banking stability in emerging countries: an
empirical approach - Munich Personal RePEc Archive. [online] Mpra.ub.uni-muenchen.de.
Available at: https://mpra.ub.uni-muenchen.de/25464/ [Accessed 16 Aug. 2018].
Shan, Y. (2017). Systemic Risk and Credit Risk in Bank Loan Portfolios. SSRN Electronic
Journal.
Shkodra, J. and Ismajli, H. (2017). Determinants of the credit risk in developing countries: a
case of Kosovo banking sector. Banks and Bank Systems, 12(4), pp.90-97.
Stever, R. (2007). Bank Size, Credit and the Sources of Bank Market Risk. SSRN Electronic
Journal.
Subramanian, U. (2015). Corporate Governance, Credit Risk, Performance and its
Determinants of Banks in BRICS Countries & Applications for Banks in Brunei
Darussalam. SSRN Electronic Journal.
Varotto, S. (2011). Liquidity Risk, Credit Risk, Market Risk and Bank Capital. SSRN
Electronic Journal.
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