Loan portfolio
Loan portfolio is in banking , the entire contents of all the bank's balance sheet and business volume existing loans .
Composition of the loan portfolio
A loan portfolio is created through the granting of loans and their accounting . The bank balance sheet records the credit volume of all types of loans within the framework of money lending (loans to natural persons , companies , public authorities , loans to other countries and their subdivisions) on the balance sheet date . The business volume includes off-balance-sheet business, of which bank guarantees , letters of credit and return loans ( loan loans ) and credit derivatives are included in the loan portfolio as protection providers. The credit portfolio therefore includes all typical credit risks , but not the creditworthiness risks of a bond debtor ; Securities are therefore part of the securities portfolio.
General
The loan portfolio is an aggregate that occurs at all types of credit institutions and results from the lending business - the most important banking business . The credit risk contained in a loan portfolio can become an existential risk for banks because loan defaults can threaten particularly high losses that endanger the bank's equity . That is why the loan portfolio is an important subject of research in banking management . Since the loan portfolio is comparable to a securities portfolio, it has made use of the findings of the portfolio theories.
Portfolio theories
The securities portfolio was the classic subject of investigation in portfolio theories , the starting point of which is the "Portfolio Selection Theory" developed by Harry M. Markowitz in March 1952 . This first examined the investment behavior in the capital markets, in particular for securities such as stocks and bonds . The study distinguished between a systematic and an unsystematic market risk . The systematic risk is that changes in the general economic conditions, verified by fundamental economic data ( e.g. interest rates , unemployment , sales crises , recession ), will affect the securities portfolio. The unsystematic risk has to do with the creditworthiness of the issuer of stocks and bonds and also has an impact on the securities portfolio. Starting from the ideal case of the optimally diversified portfolio , where the unsystematic risk is completely eliminated, an attempt is made to compare the actual portfolios.
In 1970, George A. Akerlof dealt with the findings of "adverse selection" in his essay The Market for Lemons . It can also be applied to portfolios and leads to a deterioration in the securities / loan portfolio because the issuer / borrower is not measured by their real risk through an inadequate rating and interest rates that are not in line with the risk, so that the "good" issuers / borrowers are incentivized to Feel emigration / loan repayment due to unfavorable conditions and the "bad" issuers / borrowers prefer to stay because of more favorable conditions. A risk premium (loan interest) that is too high is demanded of the good, and too low a risk premium for the bad. The result is that because of this “ adverse selection ” there are very likely only bad risks in the portfolio.
In the money and capital markets , it can be observed that in the case of contracting monetary policy measures by central banks ( e.g. interest rate hikes , minimum reserve increases ) through a reduction in the creditworthiness of borrowers (e.g. due to loss of value on securities and real estate), the credit risks in the banks' credit portfolio increase. Adverse selection and moral hazard - caused by information asymmetries between borrowers and lenders - could then cause banks to implement credit rationing ( credit crunch ) instead of increasing interest rates, with contractionary consequences for overall economic demand.
Transfer to the loan portfolio
In 1976, Hans-Jacob Krümmel was still of the opinion that the portfolio theory could not be used in the lending business for organizational reasons. He justified this in particular with largely decentralized credit decisions , which would turn out to be uncoordinated, and the lack of an overview of the decision-makers. With these - surmountable - organizational obstacles, Krümmel overlooked a much more significant obstacle, namely the wrong level of risk . Markowitz measures the risk using the standard deviation of the returns on securities, while in the credit area the value at risk is used as a risk measure . The standard deviation does not allow any statement to be made about the probability of losses in the loan portfolio. Since the Value at Risk is available and the organizational problems can be eliminated, nothing stands in the way of applying portfolio theory in the lending business.
It should be noted that a loan portfolio not only adds up the individual risks of all loans, but also takes into account their specific interaction with one another. Scheduled monitoring of cluster risks and granularity can reduce these unfavorable correlation relationships. The lower the positive correlation between the individual loans, the lower the overall risk. Accordingly, the risk decreases through diversification , i.e. risk spreading. Risk can be diversified either through a large number of small loans (granularity) or through a breakdown into different borrowers, foreign currencies , rating classes , industries and regions (cluster risk).
Improvement of the loan portfolio
The risks of a credit portfolio consist of expected and unexpected credit losses (expected / unexpected loss). The unexpected loss can be determined using the value at risk and is lower the lower the concentration in the loan portfolio (number of borrowers, distribution of the loan volume and correlation of the individual loans). The bank's credit risk management has the task of optimizing the portfolio structure. Concentration analyzes divide the loan portfolio according to all conceivable criteria, in particular according to borrowers and their correlations, sectors, regions or currencies. A high positive correlation means that there is a close connection between certain borrowers in the loan portfolio, so that the overall risk in the portfolio grows disproportionately due to a new loan with a high positive correlation. The aim must be to grant loans with the lowest possible correlations in the new loan business. This is achieved on the one hand through this risk diversification, on the other hand also through increased creditworthiness requirements , acceptance of loan collateral , loan trading or credit derivatives . Loan trading comes about simply because an institution that is ready to sell wants to reduce a strong positive correlation and that willing to buy can even achieve a negative correlation through the traded loan. If the loan portfolio is highly diversified as a result, a new loan will only lead to a low risk premium and vice versa. A diversification effect occurs when the borrower's correlation is less than +1 (up to a maximum of −1 in the case of a negative correlation). The systematic credit risk can be diversified away by diversification, while the unsystematic risk can be eliminated in the case of negatively correlated credits. This diversification effect has an effect on the credit spread , because with low concentration risks (e.g. negative correlation), the bank's internal credit spread can fall below the credit spread available in the market and vice versa. The risk-adequate spread is reached when the bank's internal credit spread matches the market spread.
Sale of loan portfolios
Can be sold or traded between banks, insurance against default or by means thereof credit portfolios or parts forderungsbesichertem securities (ABS) securitized be. Trading in loan portfolios is already very well developed in the Anglo-Saxon financial markets. In the years since 2002 a number of loan portfolios have also been sold in Germany. In this context, German credit institutions often sold portfolios with non-performing loans to specialized foreign investors. But the sale of non-performing loans has also increased due to the strategic realignment of many institutions.
Benefits of selling loan portfolios
By selling parts of its loan portfolio, the bank can relieve its equity and create scope for granting new loans. By transferring risk to the acquiring investor, it also reduces its own credit default risk .
Investing in a loan portfolio enables investors to invest capital in loans to specific target groups without having to act as lenders themselves. This enables a broader diversification of credit risks.
Disadvantages of selling loan portfolios
Often times, borrowers are not aware that their loan is available for sale by the lender. With the new lender, not only the contact person changes, but also the goodwill on the part of the lender. This can disrupt the relationship of trust between the borrower and the (old) lender. With universal banks in particular, this is a negative aspect of sales for both sides.
Current discussion on the sale of loan portfolios
Since the end of 2007 there has been a political and emotional discussion on the sale of loan portfolios in Germany. It is assumed that foreign investors are taking advantage of non-performing loans. In this context, the federal government is examining the restriction of the possibility of selling loan portfolios.
Individual evidence
- ↑ Harry M. Markowitz, Portfolio Selection , in: Journal of Finance, 1/1952, pp. 77-91
- ↑ George A. Akerlof, "The Market for Lemons": Quality Uncertainty and the Market Mechanism , in: Quarterly Journal of Economics, No. 84, 1970, pp. 488-500
- ↑ Volker Tolkmitt, Neue Bankbetriebslehre , 2004, p. 143
- ↑ Otmar Issing, Geschichte der Nationalökonomie , 2001, p. 224
- ↑ Hans-Jacob Krümmel, Limiting the Credit Risk in the Banking Act from the Perspective of Credit Theory, in: ÖBA 1976, p. 194
- ↑ Peter Grundke, Modeling and Evaluation of Credit Risks , 2003, p. 262
- ↑ Hanspeter Gondring / Edgar Zoller / Josef Dinauer, Real Estate Investment Banking , 2013, p. 24
- ^ Tanja Schlösser, Problem Loan Management in the German Lending Business , 2011, p. 65
- ↑ Hans Paul Becker / Arno Peppmeier, Bankbetriebslehre , 2006, p. 363