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A model for risk classification of banks
Author(s) -
Kumar Sameer,
Arora Sant
Publication year - 1995
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090160206
Subject(s) - logit , actuarial science , econometrics , logistic regression , statistics , computer science , economics , mathematics
This paper deals with designing a bank risk classification scheme based on readily available performance data. This risk rating is referred to as ‘Risk rating’. Due to non‐availability of data on CAMEL rating (C rating), R risk rating has potential for studying risk‐based premiums insurance policy and for determining optimal frequencies for variable frequency on‐site examination policy. A composite non‐performance measure is developed to estimate probability of failure of a bank based on performance data available in bank call reports by fitting a Logit curve and estimating its parameters using maximum likelihood method. Division of banks into healthy and watchful types is based on critical dividing value of probability of failure.