Stress Testing Credit Risk: Is the Czech Republic Different from Germany?

This study deals with credit risk modelling and stress testing within the context of a Merton-type one-factor model. We analyse the corporate and household sectors of the Czech Republic and Germany to find determining variables of credit risk in both countries. We find that a set of similar variables explains corporate credit risk in both countries despite substantial differences in the default rate pattern. This does not apply to households, where further research seems to be necessary. Next, we establish a framework for the stress testing of credit risk. We use a country specific stress scenario that shocks macroeconomic variables with medium severity. The test results in credit risk increasing by more than 100% in the Czech Republic and by roughly 40% in Germany. The two outcomes are not fully comparable since the shocks are calibrated according to the historical development of the time series considered and the size of the shocks for the Czech Republic was driven by the transformation period.Credit risk, credit risk modelling, stress testing.

Relationship Lending in the Czech Republic

This paper presents the results of an analysis of data on individual bank loans of nonfinancial corporations in the Czech Republic taken from the CNB’s Central Credit Register. It focuses on the question of how firms obtain financing from domestic banks. The results show that the vast majority of non-financial corporations use the services of just one relationship lender. Small and young firms in technology- and knowledge-intensive industries tend to concentrate their credit needs in a single bank, whereas less creditworthy firms and firms in cyclical industries tend to borrow from more than one bank. The analysis also reveals different behaviour of firms towards financing banks in the case of multiple lenders. Finally, it turns out that the level of credit risk at bank level decreases in line with the extent to which firms applying single relationship lending occur in the bank’s portfolio.Credit risk, relationship banking.

Households’ response to economic crisis

This paper studies the economic impact of the current global economic downturn on the household sector. Household budgets can be negatively affected by declines in nominal wages and increases in unemployment. We empirically test this effect for the small open emerging economy. As a result of a lack of individual data on household finances, micro data are simulated. Our analysis clearly shows that there is a significant additional decline in consumption related to an increase in household default rates and unemployment. We find that potential household insolvencies have important implications for the financial system as well as for the macroeconomy.credit cycle; households’ distress; insolvency; household default; aggregate consumption

The Merton Approach to Estimating Loss Given Default: Application to the Czech Republic

This paper focuses on a key credit risk parameter – Loss Given Default (LGD). We illustrate how the LGD can be estimated with the help of an adjusted Mertonian structural approach. We present a derivation of the formula for expected LGD and show its sensitivity analysis with respect to other company structural parameters. Finally, we estimate the five-year expected LGDs for companies listed on Prague Stock Exchange and find that the average LGD for the analyzed sample is around 20–50%.Credit risk, loss given default, structural models.

Climate risk assessment of the sovereign bond portfolio of European Insurers

In the first collaboration between climate economists, climate financial risk modellers and financial regulators, we apply the CLIMAFIN framework described in Battiston at al. (2019) to provide a forward-looking climate transition risk assessment of the sovereign bonds’ portfolios of solo insurance companies in Europe. We consider a scenario of a disorderly introduction of climate policies that cannot be fully anticipated and priced in by investors. First, we analyse the shock on the market share and profitability of carbon-intensive and low-carbon activities under climate transition risk scenarios. Second, we define the climate risk management strategy under uncertainty for a risk averse investor that aims to minimise her largest losses. Third, we price the climate policies scenarios in the probability of default of the individual sovereign bonds and in the bonds’ climate spread. Finally, we estimate the largest gains/losses on the insurance companies’ portfolios conditioned to the climate scenarios. We find that the potential impact of a disorderly transition to low-carbon economy on insurers portfolios of sovereign bonds is moderate in terms of its magnitude. However, it is non-negligible in several scenarios. Thus, it should be regularly monitored and assessed given the importance of sovereign bonds in insurers’ investment portfolios

Non-performing loans: what matters in addition to the economic cycle?

Using a novel panel data set we study the macroeconomic determinants of nonperforming loans (NPLs) across 75 countries during the past decade. According to our dynamic panel estimates, the following variables are found to significantly affect NPL ratios: real GDP growth, share prices, the exchange rate, and the lending interest rate. In the case of exchange rates, the direction of the effect depends on the extent of foreign exchange lending to unhedged borrowers which is particularly high in countries with pegged or managed exchange rates. In the case of share prices, the impact is found to be larger in countries which have a large stock market relative to GDP. These results are robust to alternative econometric specifications

OSSOS VI. Striking Biases in the detection of large semimajor axis Trans-Neptunian Objects

The accumulating, but small, set of large semi-major axis trans-Neptunian objects (TNOs) shows an apparent clustering in the orientations of their orbits. This clustering must either be representative of the intrinsic distribution of these TNOs, or else arise as a result of observation biases and/or statistically expected variations for such a small set of detected objects. The clustered TNOs were detected across different and independent surveys, which has led to claims that the detections are therefore free of observational bias. This apparent clustering has led to the so-called "Planet 9" hypothesis that a super-Earth currently resides in the distant solar system and causes this clustering. The Outer Solar System Origins Survey (OSSOS) is a large program that ran on the Canada-France-Hawaii Telescope from 2013--2017, discovering more than 800 new TNOs. One of the primary design goals of OSSOS was the careful determination of observational biases that would manifest within the detected sample. We demonstrate the striking and non-intuitive biases that exist for the detection of TNOs with large semi-major axes. The eight large semi-major axis OSSOS detections are an independent dataset, of comparable size to the conglomerate samples used in previous studies. We conclude that the orbital distribution of the OSSOS sample is consistent with being detected from a uniform underlying angular distribution.Comment: Accepted for publicatio

Radioactivity of Honeys from Poland After the Fukushima Accident

Concentration of radioactive isotopes in honey constitutes an important bioindicator of environmental radiation. One hundred six honey samples were collected from hives and from bottled honey provided by beekeepers from north-eastern Poland in 2010, before the Fukushima accident, and during the two-year period directly following this catastrophe (2011–2012). Cesium-137 (Cs-137) and potassium-40 (K-40) were determined in lime, multifloral, buckwheat, honeydew and other kinds of honey samples. The obtained mean concentrations of Cs-137 and K-40 (Bq kg(−1)) in honey samples were: 1.19 and 32.92 in 2010, 0.90 and 31.13 in 2011, 1.31 and 36.06 in 2012, respectively. Significant differences were not observed. Therefore, the studied honey samples collected after the Fukushima accident are found to be safe for humans with levels of Cs-137 and K-40 not posing any threats. However, the total concentration of Cs-137 and K-40 in samples stopped decreasing in 2010–2011 and showed a slight increase in 2012. This relation may suggest the impact of pollution from Fukushima and requires further research in the coming years