This paper aims at proposing a new methodology to compute recovery rate on non-performing bank loans, in order to confine this variable within the interval [0,1]. Such a methodology is then applied to data on loans gathered by the Bank of Italy and some interesting characteristics of the loan recovery process in the Italian banking market are highlighted. The combined effects of some variables on the recovery rates are also analysed. In particular, the presence of either collateral or personal guarantee, the borrower's residence area are considered, thereby emphasizing the relationship between the recovery rate and the total exposure.
Calabrese, R., Zenga, M. (2008). Measuring loan recovery rate: Methodology and empirical evidence. STATISTICA & APPLICAZIONI, 6(2), 193-214.
Measuring loan recovery rate: Methodology and empirical evidence
ZENGA, MICHELE
2008
Abstract
This paper aims at proposing a new methodology to compute recovery rate on non-performing bank loans, in order to confine this variable within the interval [0,1]. Such a methodology is then applied to data on loans gathered by the Bank of Italy and some interesting characteristics of the loan recovery process in the Italian banking market are highlighted. The combined effects of some variables on the recovery rates are also analysed. In particular, the presence of either collateral or personal guarantee, the borrower's residence area are considered, thereby emphasizing the relationship between the recovery rate and the total exposure.
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