Credit Risk Sensitivity to Macroeconomic Factors

From Open Risk Manual

Credit Risk Sensitivity to Macroeconomic Factors

This entry is a catalogue of macroeconomic factors that may have an influence in the performance of credit contracts. The relationship of macroeconomic drivers to credit risk is important in specific contexts such as Bank Stress Testing or IFRS 9 but is useful more broadly for all Credit Portfolio Management

The catalogue aims to capture relevant factors by the main dimensions:

  • applicable region (country)
  • applicable legal entity (individuals, firms, sovereigns)
  • credit parameter (exposure, probability of default, loss given default etc)
  • credit lifecycle stage (performing versus non-performing loans)

Remarks

  • The list does not aim to provide definitive, detailed or numerical relationships. Besides the intrinsic difficulty of establishing definitive relationships, the precise linkages of macro factors to credit risk will always depend on details of the credit portfolio being considered
  • In concrete applications the catalogue is best used either as a starting point for designing an analytical approach or as cross-check of existing work.
  • The focus of this list is on publicly accessible references, possibly backed by quantitative studies, but anecdotal evidence is acceptable and encouraged.
  • The structure of the catalog reflects the typical cause / effect arrangement of analytical frameworks for credit risk analysis. In the simplest case this translates into linear relationships but may be far more complex, with secondary effects and feedback loops


NB: The catalog of Credit Risk Sensitivities to Macroeconomic Factors is provided as-is without any implied endorsement or validation of the suitability, originality, accuracy or completeness of said resources for any purpose.

Catalogue

  • Macro factors are drawn from the macroeconomic factor list where the definitions and further information per factor are provided
  • Entries are listed in parameter/factor format (hence multiple possible factors per parameter)
  • Listing a parameter/factor pair implies there is at least some evidence for a relationship. Further remarks may constraint the relationship further (e.g. positive correlation).
  • Notes is a general purpose field for remarks that may assist with placing the relationship in context (e.g. evidence for unstable or non-linear associations etc.)


Risk Parameter Factor Impact Notes References
Retail Mortgages Unemployment Rate Positive Correlation

[1]

Commercial Real Estate Gross Domestic Product Negative Correlation
Corporate Loans Gross Domestic Product Negative Correlation
Retail Mortgages Gross Domestic Product Negative Correlation
Consumer Credit Gross Domestic Product Negative Correlation
Banks Gross Domestic Product Negative Correlation
Sovereigns Gross Domestic Product Negative Correlation
Retail Mortgages Private Consumption Negative Correlation
Consumer Credit Private Consumption Negative Correlation
Commercial Real Estate Investment Growth Negative Correlation
Corporate Loans Investment Growth Negative Correlation
Commercial Real Estate Export Growth Negative Correlation
Corporate Loans Export Growth Negative Correlation
Commercial Real Estate Stock Market Valuation Negative Correlation
Corporate Loans Stock Market Valuation Negative Correlation
Retail Mortgages Unemployment Rate Positive Correlation
Consumer Credit Unemployment Rate Positive Correlation
Commercial Real Estate Inflation Negative Correlation
Corporate Loans Inflation Negative Correlation
Retail Mortgages Inflation Negative Correlation
Consumer Credit Inflation Negative Correlation
Banks Inflation Negative Correlation
Sovereigns Inflation Negative Correlation
Commercial Real Estate Long Term Rates Positive Correlation
Corporate Loans Long Term Rates Positive Correlation
Retail Mortgages Long Term Rates Positive Correlation
Consumer Credit Long Term Rates Positive Correlation
Banks Long Term Rates Positive Correlation
Sovereigns Long Term Rates Positive Correlation
Commercial Real Estate Short Term Rates Positive Correlation
Corporate Loans Short Term Rates Positive Correlation
Retail Mortgages Short Term Rates Positive Correlation
Consumer Credit Short Term Rates Positive Correlation
Banks Short Term Rates Positive Correlation
Sovereigns Short Term Rates Positive Correlation
Retail Mortgages Real Estate Prices Negative Correlation
Commercial Real Estate Real Estate Prices Negative Correlation
Commercial Real Estate Vacancy Rates Positive Correlation
Corporate Loans Commodity Prices Positive Correlation
FX Lending Risk FX Rates Negative Correlation

References

  1. ECB: Stress-Test Analytics for Macroprudential Purposes in the Euro area, Feb 2017

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