ESTIMATION OF THE DEFAULT PROBABILITY OF COMMERCIAL BANK BORROWERS: CASE STUDY

Abstract

The paper describes the essence of the risks that banks face in their activities, first of all, that of the credit risk, the level of which is determined by the size of financial losses if a borrower does not repay credit funds and interest for using them. The models for assessing the probability of a borrower default (statistical, based on artificial intelligence and theoretical ones) are considered and compared; their advantages and disadvantages are determined. It is shown that, as a rule, one of the theoretical models underlies the application of statistical models or artificial intelligence models, and the choice of a model depends on the purpose of the assessment, information that can be used, technical and technological support and the bank's personnel potential.       The analysis of a particular borrower of a bank – a firm, carrying out its activities in the field of agriculture, is done. The procedure used for assessing credit risk is based on the NBU regulation on the determination by Ukrainian banks of the size of credit risk for active banking operations. The stages of the procedure are: calculation of the integral indicator, debtor’s class determination and the probability of borrower default, calculation of the exposure at risk and the of the level of losses in case of default and the assessment of the credit risk itself. To determine the probability of a borrower's default, the classic Altman’s model was used, which made it possible to calculate an integral indicator using financial indicators of the enterprise; according to the internal rating of the bank, the class of the enterprise and the probability of default are determined. The size of the credit risk was calculated and its impact on the bank's norms was estimated. The loan provided belongs to the group of large indebtedness, therefore, the bank must constantly monitor the impact of the loan provided on certain standards of credit risk. basic recommendations for issuing and servicing a loan are provided.