Recovery Rates of Bank Loans: Empirical Evidence for Germany

Grunert, Jens; Weber, Martin

doi:10.2139/ssrn.697741

Cited by 10 publications

(12 citation statements)

References 40 publications

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“…The duration of the recovery process could affect the results achieved, and normally the less time-consuming processes are those that ensure the better performance (Bank of Italy, 2001). Some authors support an alternative thesis that the duration of the recovery process is not relevant for itself but becomes relevant due to external macroeconomic factors that could affect the performance of the recovery process (Grunert and Weber, 2009). The vintage represents a proxy of the strength of the relationship between the customer and the financial intermediary.…”

Section: Methodsmentioning

confidence: 99%

The Impact Of Discount Rate Choice In Estimating The Workout LGD

Gibilaro

Mattarocci

2011

JABR

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<p>The workout approach to estimating the loss given default compares the actual value of the recovery flows with the exposure at default to measure the efficacy of the recovery process. One of the main problems related to this approach is the selection of the proper discount rate for evaluating the portfolio. In the literature, there are different solutions proposed, but there is no evidence on the impact of the choice of one of these alternatives on the LGD measurement. This paper looks at a proprietary database for the timeframe 1985-2005, evaluates the impact of the discount rate on the LGD value and studies the main determinants of LGDs computed using different approaches. Even if the explanatory variables are the same, LGDs defined using different discount rates show differences in the percentile distribution that could significantly affect the capital requirements of a financial intermediary.</p>

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Section: Methodsmentioning

confidence: 99%

The Impact Of Discount Rate Choice In Estimating The Workout LGD

Gibilaro

Mattarocci

2011

JABR

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“…2/ In this dimension, we report formal bankruptcies with the explicit legal option to keep the firm as a going-concern, which is not the eligible in Germany, so we use proxy figures. 3/ According to Grunert and Weber (2009), 40 percent (48 of 120 firms) of the defaulted firms investigated continued their business, while 60 percent of the firms were liquidated (72 firms). As the sample is based on a broad default definition, the figure includes also voluntary default events, whereby the likelihood for going-concern type bankruptcy procedures becomes 27 percent of all default events or 31 percent in conditional terms.…”

Section: B Frequency Of Different Bankruptcy Proceedingsmentioning

confidence: 99%

“…34 For the remainder of the defaulted firms that entered formal bankruptcy procedures, the likelihood for the formally bankrupt firms being liquidated in the UK is approximately 62 percent (liquidations and ex-receivership), and 38 percent for keeping them as a going-concern (administrations). For Germany, where no separate chapter 11 type bankruptcy procedure exists, 35 we use a proxy, namely the likelihood that a firm entering formal bankruptcy will be carried on based on data from Grunert and Weber (2009). 36 Conditional on entering formal bankruptcy procedures 69 percent of the firms were liquidated, while 31 percent were successfully kept as a going-concern.…”

Section: B Frequency Of Different Bankruptcy Proceedingsmentioning

confidence: 99%

The Impact of Legislationon Credit Risk: Comparative Evidence From the United States, the United Kingdom and Germany

Schmieder

Schmieder²

2011

IMF Working Papers

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This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.This study investigates the link between bankruptcy and security legislation and potential credit losses faced by banks based on a cross-country study for the United States (US), the United Kingdom (UK) and Germany. Focusing on corporate credit, we find that legislation produces the highest credit risk in the US, followed by Germany, while UK law is found to be most favorable for banks. US banks gains from the higher number of informal restructurings (without losses) but lose from the low level of recovery in formal proceedings. German banks demand more credit risk mitigants than UK and US banks do, but still recover less than do UK banks. To be at par with UK banks, US banks would have to recover more than twice as much in formal proceedings, while German proceedings would have to be shortened by about one half.

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“…As no market price data are readily available for defaulted bank loans in Portugal, the second methodology -the present value of actual recovered cash flows -is the only feasible alternative. This approach was adopted by Asarnow and Edwards (1995), Carty and Lieberman (1996), and Araten et al (2004) for the US, Hurt and Felsovalyi (1998) for Latin America, Franks et al (2004) for France, Germany and UK, and Grunert and Weber (2005) for Germany. While these authors did not have access to the interest rate charged on individual loans and had to rely on an approximation of credit-risk adjusted yield curve, data on interest rates charged on the loans are available in this study.…”

Section: Database and Measurement Issuementioning

confidence: 99%