Systematic and idiosyncratic risk in syndicated loan portfolios

Erik Heitfield, Steve Burton, Souphala Chomsisengphet

Abstract

ABSTRACT

We examine the influence of systematic and idiosyncratic risk factors on value-at-risk (VAR) for the syndicated loan portfolios of 30 banks. Larger portfolios are better diversified across sectors than smaller ones but are also more heavily weighted toward high-risk sectors. As a result, the component of VAR attributable to systematic factors is larger in the largest portfolios. Idiosyncratic factors play a much more important role in relatively small portfolios. Simple analytic measures of portfolio risk and concentration are highly correlated with VAR. Marginal contributions to VAR vary widely across sectors and are sensitive to the weighting of exposures within each portfolio.