Operational drivers affecting credit risk of mutual guarantee institutions

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.

SMEs, public credit guarantees and mutual guarantee institutions

“…In fact, the higher constraints in terms of capital requirements often limit the success of a first demand guarantee to situations in which it is possible to obtain a CGF counter-guarantee. Furthermore, the presence of a second-level guarantee appears to reduce MGIs' screening activities (Gai and Ielasi, 2014). The seventh hypothesis, i.e., the MGI's financial liability in granting guarantees is positively related to the default risk of public guarantees, is therefore not confirmed.…”

The Determinants of the Confidi Delinquency Rate

“…In addition, an increment in the level of leverage of the confidi and in the dimension of the portfolio of the counter-guarantor to which the confidi transfers part of its credit risk show a positive impact on the risk of the loan guaranteed operations (Gai et al, 2016).…”

Untitled

“…The risk of non-performance credits are a multifactorial problem that is why is necessary to improve the risk evaluation process using multi-criteria models that recognize multiple aims and use quantified and quality information of the accredited (Leal et al, 2018). The credit risk analysis and credit monitoring process are related to the probability of default of the credit (Gai and Lelasi, 2014).…”

“…Source: Own Elaboration. (2015), Mpofu and Nikolaidou (2018), Trejo García et al (2017), Waemustafa and Sukri (2015), Perez and Fernandez (2007), Gila-gourgoura and Nikolaidou (2018), Gai and Lelasi (2014), Ozili and Outa (2017), Gómez and Checo (2014) Credit risk is the probability that a payment is paid neither in time nor in the established form Probability of default Perez and Fernandez (2007), Leal, Aranguiz, &Mardones (2018), Gai and Lelasi (2014), Navaretti et al (2015), Trejo García et al (2017), Gómez and Checo (2014)…”