Journal of Credit Risk

Welcome to the September issue of The Journal of Credit Risk.

The first paper in this issue ‘When banks venture beyond home turf: consequences for loan performance’ by Yuta Tanoue and Satoshi Yamashita, examines the interesting question of whether lending outside of a bank’s home territory (with all other things being equal) is riskier than lending inside the bank’s home territory. Using credit data on five Japanese regional banks, the authors develop credit risk estimation models to analyse the effect of the characteristics of lending area.

‘Reliability and agreement of credit ratings in the Mexican fixed-income market’ by Ventura Charlin and Arturo Cifuentes discusses the important role that credit ratings play in the bond market. The authors borrow concepts from measurement, test and psychometric theories to explore the issue of credit ratings in the Mexican corporate bond market, specifically, and find that all three of these credit rating agencies give ratings that are not equivalent. The authors’ results, therefore, challenge the suitability of ratings as a useful metric for regulatory purposes.

In the issue’s final paper, ‘Addressing probationary period within a competing risks survival model for retail mortgage loss given default’, Richard M. Wood and David Powell  build on the established two-stage modeling framework for retail mortgages in which loss given default is computed as the product of property possession. This paper uses competing risks survival analysis to present a novel approach to modeling retail mortgage LGD estimation, going some way toward addressing concerns of little advancement in this field.