CHANGES IN CREDIT RATING OF THE BORROWER AND THE METHOD OF ITS ACCOUNTING FOR THE PROCESS OF DETERMINING RATES OF CREDIT
Journal Title: Проблеми системного підходу в економіці - Year 2017, Vol 2, Issue 58
Abstract
The article deals with the essence and functional consistency of the borrower’s credit rating related to the credit risk in terms of the credit ratings fluctuation. Banks operating in the high-risk environment where one of the important risks is the credit risk should be calculated with accuracy and distributed appropriately due to the pricing mechanism usage. The another problem is the value of the credit risk fluctuates and depends on the many factors. This is article is the attempt to determine the influence factors and to describe the one of the visible reasons of the credit risk fluctuation – the changes in credit rating of the borrower. The article’s aim is the development of the justification of the theoretical and methodological principles of taking into account the credit rating migration risk during the pricing processes. Credit migration is the discrete characteristic of the borrower's creditworthiness. The creditworthiness of the borrower must be revaluated as the result of the changes in borrower’s credit rating. The credit risk migration can be defined due to the credit rating’s migration probability matrix. This risk should be reflected in the prices through the pricing model giving the ability to include the credit rating changes into the asset’s price. According to our model, the verification of the level and sources of the potential losses of the creditor as a result of the borrower’s credit rank migration carried out during the pricing process. The results of the article include: the characteristics of the factors effect on the change of the credit rating of the borrower; the vision of the model for certain groups of the borrowers describing the credit price changes as the response to the changes of the borrower’s credit rating; the recommendation related to the implementation of the model during the pricing process for bank’s assets. The further studies’ perspective is the credit rating migration risk inclusion model formalization and adaptation for the usage with the risk-based pricing.
Authors and Affiliations
A. I. Bondarenko
Keywords
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- EP ID EP634372
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