Credit Risk Assessment

Credit risk is the main risk in the banking business. It can significantly influence the bank's profitability and is closely related to the bank's liquidity and interest rate risk. For these reasons, the bank's credit risk management is priority concern not only of the banks themselves but also of the banking supervision. Therefore banks are trying to reduce this risk by precise assessment of client's creditworthiness. The aim of this article is credit risk evaluation in the corporate segment in assessing credit transactions by the bank and suggestion of other possibilities for measuring credit risk. We went through studies focused on bankruptcy of corporate entities which were done in different countries and selected six of them where linear regression was used. We have chosen these studies because their objective is similar or the same as our planned research. We found that logistic regression improved assessment done by discriminant analysis in all cases and also confirmed well known relations - higher profitability, higher liquidity and higher volume of assets means lower risk of default, while higher indebtedness, higher leverage means higher risk of default.