In this issue we have three papers, looking at credit ratings and consumer loans.
Welcome to the first issue of the 15th volume of The Journal of Credit Risk. In this issue we have three papers.
Our first paper, “Calibration and mapping of credit scores by riding the cumulative accuracy profile” by Marco van der Burgt, presents a method for mapping credit scores to ratings and calibrating these ratings by assigning a probability of default per rating grade. A lot of literature on credit risk scoring techniques exists, but less research is avail- able regarding the mapping of credit scores to ratings and the calibration of ratings.
“Are lenders using risk-based pricing in the Italian consumer loan market? The effect of the 2008 crisis” by Silvia Magri is our second paper. In this paper, the author analyses, in the context of Italy, whether the price of consumer loans is based on borrower-specific credit risk. This issue is important because mispricing could threaten financial stability through negative effects on lenders’ profitability; risk- based pricing also leads to a more efficient allocation of credit through less rationing and lower prices for low-risk borrowers, who are thereby better able to smooth their consumption, with positive effects on economic growth and financial stability.
Our final paper examines the relationship between relative efficiency and credit ratings using a sample of Korean listed firms and finds a positive relationship in the subsequent period after adjusting for absolute efficiency. In “The influence of firm efficiency on agency credit ratings” Dafydd Mali and Hyoung-Joo Lim perform empirical tests to establish whether relative efficiency calculated using frontier analysis (ie, DEA) has the potential to explain the relationship between efficiency and credit ratings.
We wish you enjoyable reading.
Are lenders using risk-based pricing in the Italian consumer loan market? The effect of the 2008 crisis
This paper analyzes whether in Italy the price of consumer loans is based on borrower-specific credit risk.