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We show, through a Linear Algebra approach, that a general deterministic cash-flow stream admits a given Internal Rate of Return (irr, either constant or time-varying) if, and only if, it can be replicated by a suitable portfolio of bonds, each with yield to maturity equal to that same irr. Five particular replicating portfolios are examined, including and generalizing other representations known from the the literature, which allow for a unified, irr-based, interpretation of apparently diverse objects. Considering the amortization of a loan as a particular case, further equivalences are found and lead to some original consideration. [ABSTRACT FROM AUTHOR]

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Background: Bank profitability is more than just a financial indicator; it is a reflection of the health and vitality of the banking sector and the economy as a whole. Profitable banks help to maintain financial stability by increasing resilience, facilitating capital formation and intermediation, promoting innovation and adaptability, and instilling confidence and trust. Hence, profitability is critical in the banking sector since it directly influences policymakers, regulators, and bank management. Therefore, the study will estimate the influence of specific bank and economic-legal determinants on return on assets in the Republic of North Macedonia. Thus, the study aims to estimate the influence of specific bank and economic-legal determinants on return on assets in the Republic of Northern Macedonia. Methods: The study employs the methodology of the Vector Error Correction Model (VECM) and covers quarterly data from 2007 to 2022. To conduct the empirical analysis required to identify and assess the factors of bank profitability, quantitative data were gathered primarily from the National Bank of the Republic of North Macedonia, the International Monetary Fund (IMF), and the World Bank. Return on Assets was used as a dependent variable. The set of factors is composed into two groups: the first includes bank-specific (controlled) factors such as the sectors’ size, credit risk, capital adequacy, liquidity, income diversification, efficiency of operations, and non-performing loans. The second group includes macroeconomic (uncontrolled) factors such as economic growth, inflation, and interest rates. Results and Conclusions: Results reveal that the size of the banking sector, the risk of the credit, liquidity, income diversification and non-performing loans have a meaningful but negative influence on the response variable. However, capital adequacy, operational efficiency, GDP and interest rate have an important positive impact. Hence, based on the empirical analyses, to boost profitability, the Macedonian banking system should prioritise asset management as a size indication, raising the non-income ratio to diversify revenue, reducing credit risk and non-performing loans, and maintaining a good liquidity ratio. Furthermore, there is clear evidence that second-level banks should extend beyond national borders. Better loan portfolio management, greater technology with database processing and communication improvements, and expanded technology with database processing and communication improvements can strengthen the ability to deal with the next crisis. Additionally, banks should increase non-interest revenue by employing it as a risk outlet in banking and distributing it across many income-generating enterprises, enhancing profitability. These findings offer insights for bank executives and regulators interested in increasing bank profitability and stability. [ABSTRACT FROM AUTHOR]

This comparative study analyzed the impact of loan portfolio composition on the efficiency of different types of banks in India—public sector, old private, and new private banks—in the period between 2013 and 2022. Efficiency was evaluated using data envelopment analysis (DEA). The study considered four loan variables—term lending, working capital, priority sector lending, and secured lending in proportion to the overall loans—as independent factors against the efficiency score as the dependent variable, using a random-effects generalized least squares (GLS) regression framework. The results indicate that there were no significant effects on the efficiency of old private banks, except for working capital, which had a marginally negative impact on bank efficiency. Working capital, priority sector lending, and term lending have been found to significantly impact the efficiency of new private banks. Only term and working capital loans significantly affected the efficiency of public sector banks. [ABSTRACT FROM AUTHOR]

One of the most critical aspects of credit risk management is determining the capital requirement to cover the credit risk in a bank loan portfolio. This paper discusses how the credit risk of a loan portfolio can be obtained by the stochastic recovery rate based on two approaches: beta distribution and short interest rates. The capital required to cover the credit risk is achieved through the Vasicek model. Also, the Black-Scholes Merton model for the European call option is utilized to quantify the Probability of Default (PD). Value at Risk (VaR) and Conditional Value at Risk (CVaR) are used as measures of risk to evaluate the level of risk obtained by the worst-case PD. A stochastic recovery rate calculates VaR related to the underlying intensity default. In addition, the intensity default process is assumed to be linear in the short-term interest rate, driven by a CIR process. The loan portfolio performance is evaluated by considering the relevant characteristics with the Data Envelopment Analysis (DEA) method. This study proposes the losses driven by the stochastic recovery rate and default probability. The empirical investigation uses the Black-Sholes-Merton model to measure the PD of eighth stocks from different industries of the Iran stock exchange market. [ABSTRACT FROM AUTHOR]

We examine whether bankers face disciplining consequences for structuring poorly performing corporate loans. We construct a novel data set containing the employment histories and loan portfolios of a large sample of corporate bankers and find that corporate credit events (i.e. downgrades, defaults, bankruptcies) increase banker turnover. The effect is pronounced when bankers issue loans with loose terms or experience severe losses. Credit events prompt bankers to adopt stricter future risk management practices, such as offering restrictive covenant packages. Overall, our findings are consistent with banks disciplining employees as a means to manage their own risk exposure. [ABSTRACT FROM AUTHOR]

Purpose: This research aims to examine the impact of money laundering (ML) and corruption on the asset quality of conventional and Islamic banks. Design/methodology/approach: The current study used the data of conventional and Islamic banks of Pakistan from 2012 to 2018. In this study, we used fully modified ordinary least squares, dynamic ordinary least squares and pooled ordinary least square methods to analyze the data. Findings: The results found that corruption and ML positively affect the conventional banking non-performing loans (NPLs). In contrast, corruption and ML harm the Islamic bank's loan portfolio quality. Originality/value: To the best of the authors' knowledge, the relationship between corruption, ML and NPLs in conventional and Islamic banks of Pakistan are examined for the first time. Practical Implications: According to the study's findings, bank authorities should establish an effective method for monitoring loan activities and developing new and innovative products in Islamic banks. Additionally, the Pakistani government needs to improve anti-corruption and anti-ML policies to earn investors' trust. [ABSTRACT FROM AUTHOR]

In this paper, we examine the extent to which corruption affects the loan portfolio of microfinance institutions (MFIs). We employ robust econometric estimation on a sample of 507 MFIs across 63 countries from 2005 to 2018. Our results show that corruption is negatively associated with the loan portfolio. However, in semiparametric analysis, we find that lower-level corruption is beneficial to increase the loan portfolio while higher-level corruption is detrimental. The results imply that it is not just corruption that matters as far as its effect on MFIs' loan portfolio is concerned; what matters is the degree of corruption. In further analyses, we find that corruption reduces both the number of active borrowers and average loan per borrower indicating that corruption reduces both coverage and amount of credit extension. The results suggest that the effect of corruption on the loan portfolio is gender-sensitive. Corruption facilitates an increase in loans to female borrowers. Our results are robust to alternative variable measurements and different identification strategies, including two-stage least square. [ABSTRACT FROM AUTHOR]

Return–risk models are the two pillars of modern portfolio theory, which are widely used to make decisions in choosing the loan portfolio of a bank. Banks and other financial institutions are subjected to limited-liability protection. However, in most of the model formulation, limited liability is not taken into consideration. Accordingly, to address this, we have, in this article, analyzed the effect of including it in the model formulation. We formulate four models, two of which are maximizing the expected return with risk constraint, including and excluding limited liability, and other two of which are minimizing of risk with threshold level of return with and without limited liability. Our theoretical results show that the solutions of the models with limited liability produce better results than the others, in both minimizing risk and maximizing expected return. More specifically, the portfolios that included limited liability are less risky as compared to the portfolios that did not include limited liability. Finally, an illustrative example is presented to support the theoretical results obtained. [ABSTRACT FROM AUTHOR]

We investigate the impact of banks' ability to minimise costs on asset quality, by assessing the temporal relationship between these variables in a sample of Italian banks over the period 2006–2015. We offer new insights into the channels through which bank efficiency affects non-performing loans by disentangling the short-term component of cost efficiency from its long-term component. We show that non-performing loans afflicting Italian banks can be explained by both efficiency components. A decrease in short-term cost efficiency precedes a worsening in banks' asset quality, implying that regulators should consider adopting short-term efficiency as an early warning indicator of a deterioration in asset quality. We also present evidence of a trade-off between long-term efficiency and bank non-performing loans, which suggests that the removal of exogenous hindrances that prevent banks from allocating optimal levels of resources to the management of their loan portfolio should be a main policymakers' objective. [ABSTRACT FROM AUTHOR]

Purpose ─ The paper empirically explores the conditioning role of loan portfolio diversification in the monetary policy pass-through via the bank lending and risk-taking channels. Methods ─ Data of Vietnamese commercial banks during 2007–2019 is employed to perform regression using the two-step system generalized method of moments in dynamic panel models. For robustness, we approach different choices of monetary policy indicators, ranging from interest-based tools to quantitative-based policy, and consider a rich set of sectoral exposure measures to proxy loan portfolio diversification. Findings ─ Lower interest rates or greater liquidity injection during monetary expansion may increase bank lending and bank risk, thus confirming the working of the bank lending and risk-taking channels of monetary policy transmission. Notably, the potency of these banking channels may be weakened for banks diversifying loan portfolios more into various economic sectors. Implication ─ The findings call for monetary authorities to concentrate on certain types of banks, depending on their loan portfolios when setting monetary policy. When managing banking supervision, banking supervisors should also acknowledge the tradeoff between bank lending and bank risk in response to monetary shocks. Originality ─ For the first time, this paper explores the conditional role of loan portfolio composition and thus further supports the recent upsurge in empirical studies highlighting the role of business models in monetary policy pass-through. [ABSTRACT FROM AUTHOR]

Purpose: Proposes to look at current credit risk management practices by the Indian private banks. Due to the increasing diversity of types of counterparties and the growing diversity of forms of bonds, credit risk management has emerged as a leading edge in the risk management activities of financial service companies. The purpose of this study is to provide an insight into the current practices of Indian Private Banks Approach - A brief questionnaire containing eight questions was mailed to 100 bank representatives from 10 randomly selected private banks headquartered in India. Findings - The identification of counterparty default risk was found to be the most important goal of the credit risk models employed. Nearly half of the participating banks use models that are also able to handle the risk of counterparty migrating. Surprisingly, only a minority of banks currently use a vendor-owned or marketed model for credit risk management. Interestingly, those who use their own internal model also use a model commercialized by the vendor. It is not surprising that these models are more widely used for the management of nontrading credit loan portfolios than for the management of negotiated loan portfolios. Value -The results make it possible to understand the common practices of these banks. As such, they allow us to draw conclusions about how important the risks are perceived to be. The document is of particular value to Treasurers to better understand current trends in CRM, and scholars intend to carry out research in the field. [ABSTRACT FROM AUTHOR]

The Supreme Court has recently passed several judgments on the right of first refusal over disputed credits. This article analyses the grounds of those judgments (including the scope and requirements for the right to apply) and its practical implications from a procedural standpoint, among which it is worth noting that this right does not apply to the sale of credit portfolios. [ABSTRACT FROM AUTHOR]

I examine the relation between borrowers' financial reporting (FR) and the quality of banks' loan portfolios. This relation is theoretically ambiguous as better FR not only improves banks' monitoring of loans, but also grants more creditworthy borrowers cheaper access to alternative public funding, increasing competition and creating adverse selection problems for banks. Using the adoption of Sarbanes-Oxley Act Section 404 to identify improvements in borrowers' FR, I find an overall positive effect of FR on banks' lending: the quality of loans extended to borrowers subject to Section 404 improves relative to the quality of loans extended by the same bank to other borrowers exempted from Section 404. Additional tests examining borrowers' internal control over FR and loan contracts' characteristics confirm that improved monitoring and screening are both responsible for the higher loan portfolio quality. Overall, my study highlights unexplored consequences of companies' FR on the quality of banks' assets. Data Availability: Untabulated results and analyses mentioned in the article are available as an Online Appendix, see the link in Appendix E. JEL Classifications: D82; G14; G21; M41; M42. [ABSTRACT FROM AUTHOR]

We investigate whether and how a "critical audit matter" (CAM) disclosure affects managers' real operating decisions in two contexts (issuing a loan that decreases versus increases the average risk profile of loan portfolios, or choosing to hedge versus speculate on commodity risk). We expect that a CAM disclosure increases disclosure costs and implies expanded auditor support for both types of activities, but we expect implied auditor support to be valued more highly for risk-increasing than for risk-decreasing activities. As a result, we predict that a CAM disclosure decreases managers' risk-decreasing activities (due to increased disclosure costs) more than managers' risk-increasing activities (as the implied auditor support counteracts the increased disclosure costs). We find evidence consistent with our prediction across multiple experiments. Our study sheds light on the unintended consequences of a CAM disclosure and provides insight to relevant parties as the new standard goes into effect. [ABSTRACT FROM AUTHOR]

Chinese banks likely have more non-performing loans (NPLs) than officially reported. As hidden NPLs earn no interest income, loan quality problems may erode the gross interest income of banks. Using stochastic frontier analysis, we estimate the interest income of a hypothetical profit-maximising Chinese bank with no credit quality problems. Taking the deviation of actual interest income from the calculated efficient income, we then attempt to reveal the amount of hidden NPLs in Chinese banks. Our results uncover a substantial weakening in the quality of Chinese bank loan portfolios in 2016. Big banks are found to have the largest reservoirs of hidden NPLs. Dependence on interbank funding also seems to be a determinant in the size of hidden NPL portfolios. [ABSTRACT FROM AUTHOR]

It is argued that the assessment of the security level of the bank lending activities should be made taking into account the socio-economic interests of all participants in the credit process. The developed methodology of the score assessment of the security level of credit operations of the bank includes not only an analysis of the security status of the credit operations of a particular bank, but also an assessment of the external conditions of its implementation. The process of assessment of the security level of the bank credit operations is implemented in five stages: the development of a system of security indicators for the bank credit operations; formation of the information base, which consists of bank reporting (financial and managerial) and macroeconomic indicators; analysis of security indicators; preparation of the report on the state of security; advising on adjustment of the bank's policy to enhance security of credit operations and prevent the effects of possible threats. The introduction of a methodology for scoring in the practical activities of banks will allow to obtain objective characteristics of the security of credit operations, identify weaknesses, strengthen security measures, improve the bank's credit policy to prevent the effects of possible threats. [ABSTRACT FROM AUTHOR]

The article focuses on the impact of bank portfolio composition on gross national product (GNP). The authors state that previous studies found that bank portfolio composition seriously influences gross national product (GNP) in the contemporaneous period which makes them inconsistent with the monetarist view. The article also discusses a test of two-way causality, generalized least squares, and three-stage least squares. The authors state that in times of economic expansion, banks may liquidate their investment portfolios to allow an expansion of loans. Several equations are provided to help illustrate the study.

The article presents comments on Michael A. Klein's paper "A Theory of the Banking Firm," from the May 1971 issue of this journal. The article focuses on a neoclassical microeconomic analysis of banks and banking in the hopes of developing theories to explain the results of optimizing behavior on the part of banking systems. This comment studies Klein's finding that the optimal loan policy of the bank is not connected to the rate paid on deposits. The author states that it does not make sense to say that the optimal loan policy is independent of the rate paid on deposits. Mapped out are five reasons why the analysis is confusing.

The credit portfolio in banks with the traditional model of banking hasdominant role in the banks' operations and. Loan portfolio quality it is the main generator of the banks' results. The basic indicator for quality of the credit portfolio is the share of non-performing loans to total credit portfolio. Very often, the NPL loans are also a source of other risks, as liquidity risk and solvencyand increase the risk profile of the bank.This paper investigates the influence of the non-performing ratio on houseeholds on the financial performance ofbanking system in the Republic of Macedonia for the period 2010-2017. The analysis presents correlation and regression between non-performing loan ratio on housholds and profitability indicators: rate of return on assets and rate of return on equity, as well as the capital adequacy.The results of correlation shows a moderately high, negative correlation between the non-performing loans ratio and rates of return on equity and return on assets. Regression analysis shows that increasing the non-performing loans ratio has influence to reduce the bank profitability. [ABSTRACT FROM AUTHOR]

Highlights • This paper analyzes the impact of nontraditional banking assets (NBA) on banks' loan portfolio decisions. • The paper finds that increased risk exposure to NBA has a nontrivial impact on the supply of short-term credits. • Commercial-focused banks with larger amounts of risky NBA curbed business and consumer lending during the financial crisis. • In the presence of FAS No. 166 and 167, securitizer banks with larger amounts of NBA reduced business credits. • Limitations on excessive NBA may be effective in maintaining not only bank stability but also the availability of lending. Abstract This paper investigates the impact of the integration of traditional and nontraditional banking activities on loan portfolio management at the consolidated level. The increased risk exposure to nontraditional banking assets, e.g., trading and merchant banking assets, has a nontrivial impact on traditional loan portfolios and, in particular, on the supply of short-term credits. The findings show that confronted with the market-wide shock of the financial crisis, commercial-focused banks which hold larger amounts of risky nontraditional banking assets gravitate their loan portfolios away from business and consumer loan sectors. The results from a quasi-natural experiment reveal that in response to an exogenous regulatory shock of FAS No. 166 and 167, which required banks to transfer off-balance sheet securitized loans onto bank balance sheets, securitizer banks tend to reduce business credits substantially more due to their pre-existing exposures to nontraditional assets. [ABSTRACT FROM AUTHOR]

Summary: Based on unique data we show that macro variables, the default rate and loss given default of bank loans share common cyclical components. The innovation in our model is the distinction between loans with either severe or mild losses. The variation in the proportion of these two types drives the cyclic behavior of the loss given default and constitutes the links with the default rate and macro variables. These links vary according to loan and borrower characteristics. During downturns, the proportion of defaults with severe losses increases, but the distribution of losses conditional on their being mild or severe does not change. although loans are monitored more closely than bonds and are more senior, the cyclical variation in their losses resembles those for bonds, albeit around a lower average level. This variation leads to an increase in the capital reserves required for loan portfolios. [ABSTRACT FROM AUTHOR]

We examine the effects of banks' financial reporting frequency from 2000 to 2014 and find that quarterly reporting improves their loan portfolio quality. Sample banks experience a relative decrease of about 11 percent in their nonperforming loans after switching to quarterly financial disclosures. Consistent with market discipline enhancing lending practices, these results are stronger in regimes with weaker depositor insurance and external monitoring, and in those with stronger capital markets. We also find that banks that provide quarterly financial information experience lower deposit interest rates and credit default swap spreads. Collectively, our findings suggest that quarterly reporting reduces banks' risk-taking. JEL Classifications: G21; G28; G32; M41; M48. [ABSTRACT FROM AUTHOR]

In the past decades, affordability has become a more important issue in housing research. The recent subprime mortgage crisis has shed light on the imperative need to address the affordability challenge. The purpose of this paper is to analyse the housing affordability constraint from a conceptual and analytical standpoint by highlighting its role in a dynamic life cycle modelling framework. We attempt to assess quantitatively the impact of the affordability constraint on households’ optimal consumption, mortgage, portfolio choices and poverty status over their lifetime. Meanwhile, we investigate the interaction between borrower-based macroprudential policies and social policies aimed at improving poverty and fostering home ownership and credit availability. Based on our simulation results, the mortgage affordability constraint is shown to have a significant impact in the prime and subprime mortgage markets. Moreover, the sensitivity analysis confirms the findings of the baseline case and emphasises that there is a non-linear (hump-shaped) relationship between affordability degrees and housing-caused poverty, particular in the age groups above 40. This implies that, in the light of the age profile of households and the features of mortgage credit markets, the magnitudes of the borrower-based macroprudential policies need careful assessment to minimise the potential conflicts with other social policies. [ABSTRACT FROM AUTHOR]

This paper is to explore the relationship between banks’ performance and their nonperforming loans (NPLs). The banks’ performance through a network production process structure with NPLs is developed. With increasing NPLs in recent years, the quality of lending assets is a key significant and influencing factor for banks’ operational risk. The research methodology is to integrate the radial and nonradial measures of efficiency into the network production process framework with NPLs; this study utilizes network epsilon-based measure model to evaluate the banking industry performance. In addition, the key characteristics of the bank industry including those of financial holding companies and privatized government banks are needed to be figured out and to provide insight into what causes imperfectly competitive conditions for some banks. The results demonstrate that the banking sector grew consistently in three aspects of operation: operating performance, profitability performance, and risk management in the last five years of the subject period. These results showed that the overall banking sector was capable of pursuing growth in both operations and profits while accounting for risk management. The potential applications and strengths of network data envelopment analysis in assessing financial organizations are also highlighted. [ABSTRACT FROM AUTHOR]

Despite theoretical and anecdotal evidence highlighting the importance of industry-level analyses to lenders, the empirical literature on debt pricing has focused almost exclusively on firm-level forces that affect expected loss. This paper provides empirical evidence that industry-level characteristics relate to debt pricing through risk premiums. We address the empirical challenges that arise when testing these theories by using a proprietary dataset of time-varying and forward-looking measures of industry characteristics. These characteristics include growth, sensitivity to external shocks, and industry structure, all measured at the six-digit NAICS level. Our results show that lenders demand higher spreads to bear industry-level risk. The relation exists within subsamples with constant credit ratings, and strengthens when lenders' loan portfolios are less diversified and during periods when diversification is difficult. Therefore, our results suggest that industry characteristics relate to debt pricing by informing lenders not only about expected loss, but also about risk premiums. [ABSTRACT FROM AUTHOR]

As important part of the financial system, the banking sector has undergone negative in terms of quality loan portfolio, changes resulting from the difficult economic climate, particularly by the slowdown of economic activity and national currency depreciation. Regarding credit policy is discussed certain measures aimed to restore the economic balance in order to achieve a certain level of economic growth. The paper approaches the ways of continuous improvement of loan portofolio quality and achieving achieving efficient lending policy effects. [ABSTRACT FROM AUTHOR]

An introduction is presented which discusses reports on operations research which include loan portfolio, cost sharing, and consumption.

We consider the problem of optimally selecting a large portfolio of risky loans, such as mortgages, credit cards, auto loans, student loans, or business loans. Examples include loan portfolios held by financial institutions and fixed-income investors as well as pools of loans backing mortgage- and asset-backed securities. The size of these portfolios can range from the thousands to even hundreds of thousands. Optimal portfolio selection requires the solution of a high-dimensional nonlinear integer program and is extremely computationally challenging. For larger portfolios, this optimization problem is intractable. We propose an approximate optimization approach that yields an asymptotically optimal portfolio for a broad class of data-driven models of loan delinquency and prepayment. We prove that the asymptotically optimal portfolio converges to the optimal portfolio as the portfolio size grows large. Numerical case studies using actual loan data demonstrate its computational efficiency. The asymptotically optimal portfolio's computational cost does not increase with the size of the portfolio. It is typically many orders of magnitude faster than nonlinear integer program solvers while also being highly accurate even for moderate-sized portfolios. [ABSTRACT FROM AUTHOR]

Purpose The purpose of this paper is to empirically investigate the impact of corruption on the asset quality of banks operating in emerging market economies over the period 2008-2012. This issue is of crucial importance given the role of banking systems in economic development and the worldwide spread of corruption. Using panel data set of 22 countries, our findings provide a strong and robust support to the hypothesis according to which corruption aggravates the problem with non-performing loans. This evidence suggests that corruption may hinder economic development through the misallocation of loanable funds. Other results are as follows: economic expansion and capitalization level improve the loan portfolio quality. By contrast, unemployment deteriorates the debt servicing capacity of borrower which in turn contributes to lower the bank asset quality.Design/methodology/approach The authors use panel data techniques on a sample of 22 emerging market economies over the period 2008-2012 to test the relevance of corrupt practices on the soundness of banks.Findings Their findings reveal a robust positive relationship between corruption and non-performing loans (NPLs). This evidence corroborates previous results on the detrimental effect of corrupt practices on financial development. The subdivision of our main sample into two groups on the basis of the level of corruption reveals the importance of the effectiveness of collateral and bankruptcy laws in reducing the effect of corruption on loan portfolio. Moreover, we find that the accessibility to more credit information is helpful only in low corrupt countries since it enhances the soundness of banks by facilitating lending decisions.Originality/value The novelty of this paper is to take into consideration the implications of corruption in investigating the determinants of credit risk. [ABSTRACT FROM AUTHOR]

Inadequate credit risk management is likely to lead a credit institution' bankruptcy. There are many techniques of this risk management some of which aimed at early warning models of depreciation loan portfolio (Credit Risk +, CreditPortfolio View, KMV etc.), while, the other part is to monitor the credit risk to the borrowers. The study undertaken proposed a credit scoring model, applied to legal entities, designed to identify their insolvency risk. The model was built based on the results obtained by 35 commercial companies (belonging to industry and production) listed on the Bucharest Stock Exchange, for a period of 3 years, between 2012-2014. Of these companies, 8 are in the default condition, meaning 23% of the sample size considered. The selected indicators express the debt repayment capacity, the profitability and the liquidity of the analyzed entities. The most relevant indicator used into the model was appreciated to be banking debt recovery term. The tests applied have demonstrated the model' validity (graininess principle, the power of discrimination). [ABSTRACT FROM AUTHOR]

This paper explores the case of a consumer loan portfolio manager incorporating the output of a multinomial classifier in the acquisition decision process. We suppose the portfolio manager has access to a pool of applicants and is required to make an accept/reject decision on each applicant. We assume each applicant's characteristics are used as inputs into the classifier with the output score used to aid in the decision making. Past literature on consumer lending decisions considered the case of a portfolio manager with access to a binomial classifier. For the case of a portfolio manager with a multinomial classifier, we show an efficient policy may be achieved through transforming the score and applying a single cutoff-score strategy on the new score. [ABSTRACT FROM AUTHOR]

The Life Cycle Theory (LCT) has been applied in business in an effort to explain the 'birth, growth, maturation and death' processes of firms. However, its application and relevancy in the microfinance field has not been popular. The LCT connotes that, the management of MFIs gains experience through time hence sharpen the business model and MFI financing. This allows MFIs to navigate from being small, inefficient and un-sustainable institutions into large, sustainable and financially sustainable institutions. Financial sustainability is celebrated by institutionalists for enhancing outreach to the poor in a consistent way. This makes financial sustainability a supreme MFI development lag necessary for every MFI. Evidence on whether MFIs develop towards financial sustainability has remained on the low side as research has continued to shy away from addressing this worthy cause. In an effort to explain whether MFIs mature towards financial sustainability, this study employs data from selected Southern Africa Development Community (SADC) MFIs, a deviation from a prior study which considered MFIs from across the world with high disclosure tendencies and asset values. We selected SADC MFIs (small and large) on the pretext that, SADC MFIs are typically financially unsustainable as portrayed by an earlier survey - raising concerns on their ability in serving the persistently poverty stricken region. Getting to know whether the LCT can explain financial sustainability becomes obligatory in designing intervention mechanisms. Panel regression methods adjusted for various robustness checks show that, the LCT cannot fully explain MFI financial sustainability. We note the role of MFI financing structure and efficiency measures in defining financial sustainability. Low cost financing sources (equity) support financial sustainability. Donations limit financial sustainability as they nurture dependency and inefficiency. Regulatory costs linked with deposit collection also constrain financial sustainability. We suggest the usage of low cost internal financing sources if MFIs are to attain FS. In the same realm, MFIs ought to restrain costs, whether they come from the financing side or operational side for financial sustainability to be attained. We note the need to maintain a quality loan portfolio to endorse FS. [ABSTRACT FROM AUTHOR]

Th e aim of this paper is to evaluate the infl uence of trends in retail loan portfolio on the consumption and economic growth of Macedonia. Th e consumption of population is one of the components of GDP, and one of its drivers is the retail credit activity. On macroeconomic level, there is wide consensus among researchers that credit activity and quality of portfolio is driven by GDP movements, unemployment ratio and indebtedness of population. Also, vice verse the activities in retail segment infl uence on consumption and indirectly on GDP. So these two linkages enhance between and can result in negative spiral. Negative movements in GDP infl uence on the quality of portfolio and higher NPL ratio. And higher NPL ratio results in further decrease in credit activity and has additional negative impact on GDP. Because of that is important to determine the causes of credit activity in this segment. Th e retail portfolio in the last 4 years in Macedonian banking sector is growing continuously, opposite of other Balkan countries. Th at is why is important to analyze the past growth of retail portfolio and to determine possible weaknesses because of its future impact on GDP. One of the most important drivers that determine the future credit growth is the quality of retail credit portfolio in the moment. Another important aspect for the portfolio trend will be the interest rate environment. Th ere is clear empirical evidence that low interest environment triggers greater credit activity and vice versa. Another important aspect of the credit qrowth, is the maturity of the retail credit portfolio as a way to decrease the monthly installments and to accumulate greater risk on longer term. Special focus of this paper will be the trend in retail loan portfolio after 2008, when the banking system of Macedonia felt the impact from fi nancial crisis. Th e activities that were taken by the banking sector then can be some guidelines for future crisis. Th e retail credit growth will be analyzed by products in order better to understand bank strategies and reasons that contributed for such a growth. Also, the analyze of NPL ratio by product will give answer whether the quality of portfolio by products was one of the key drivers for credit activity. [ABSTRACT FROM AUTHOR]

The regulatory and business need to expand the use of macroeconomic-scenario-based forecasting and stress testing in retail lending has led to a rapid expansion in the types and complexity of models being applied. As these models become more sophisticated and include lifecycle, credit quality, and macroeconomic effects, model specification errors become a common, but rarely identified feature of many of these models. This problem was discovered decades ago in demography with Age-Period-Cohort (APC) models, and we bring those insights to the retail lending context with a detailed discussion of the implications here. Although the APC literature proves that no universal, data-driven solution is possible, we propose a domain-specific solution that is appropriate to lending. This solution is demonstrated with an auto loan portfolio. [ABSTRACT FROM AUTHOR]