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The Exposure of the Nordic Banking Sector against Global Macroeconomic Factors - A Time Series Study on Probability of Default

Sarmes, Aleksandra LU and Lundström, Johan LU (2016) NEKP03 20161
Department of Economics
Abstract
Business cycles and changes in macroeconomic variables can have a huge influence on the profitability and credit exposure of an individual bank. Consequently, they affect the risk profile of a given bank. This study uses multifactor time series regressions to examine the influence of global macroeconomic variables on the probability of default for Nordic banks, both on industry level and on individual level. Z-scores are used to estimate the probability of default. Quarterly analysis is performed with probability of default as the dependent variable and macroeconomic variables as independent variables. The study is performed for the period from 2000 to 2014. The paper finds that the global macroeconomic variables that have the highest... (More)
Business cycles and changes in macroeconomic variables can have a huge influence on the profitability and credit exposure of an individual bank. Consequently, they affect the risk profile of a given bank. This study uses multifactor time series regressions to examine the influence of global macroeconomic variables on the probability of default for Nordic banks, both on industry level and on individual level. Z-scores are used to estimate the probability of default. Quarterly analysis is performed with probability of default as the dependent variable and macroeconomic variables as independent variables. The study is performed for the period from 2000 to 2014. The paper finds that the global macroeconomic variables that have the highest influence on the probability of default for the Nordic banking sector are industrial production and unemployment. The Nordic banking sector is not as homogenous as expected, since the banks are affect- ed by the variables differently. (Less)
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author
Sarmes, Aleksandra LU and Lundström, Johan LU
supervisor
organization
course
NEKP03 20161
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Probability of default, z-score models, banking sector, Nordics, global factors, macroeconomy
language
English
id
8879527
date added to LUP
2016-06-13 13:13:38
date last changed
2016-06-13 13:13:38
@misc{8879527,
  abstract     = {Business cycles and changes in macroeconomic variables can have a huge influence on the profitability and credit exposure of an individual bank. Consequently, they affect the risk profile of a given bank. This study uses multifactor time series regressions to examine the influence of global macroeconomic variables on the probability of default for Nordic banks, both on industry level and on individual level. Z-scores are used to estimate the probability of default. Quarterly analysis is performed with probability of default as the dependent variable and macroeconomic variables as independent variables. The study is performed for the period from 2000 to 2014. The paper finds that the global macroeconomic variables that have the highest influence on the probability of default for the Nordic banking sector are industrial production and unemployment. The Nordic banking sector is not as homogenous as expected, since the banks are affect- ed by the variables differently.},
  author       = {Sarmes, Aleksandra and Lundström, Johan},
  keyword      = {Probability of default,z-score models,banking sector,Nordics,global factors,macroeconomy},
  language     = {eng},
  note         = {Student Paper},
  title        = {The Exposure of the Nordic Banking Sector against Global Macroeconomic Factors - A Time Series Study on Probability of Default},
  year         = {2016},
}