Defining the probability of bank debtors’ default using financial solvency assessment models

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Due implementation of debtors’ financial solvency assessment models by Ukrainian banks with the aim of calculating the probability of their default (PD) is the next step towards the integration of Ukrainian banking system into global banking community, convergence of methodical approaches to assessing the credit risk with standards of international practice, possibility of using IRB-approach (an approach based on internal ratings) for calculating the regulatory requirements to capital adequacy.
The analysis of approaches to bank credit portfolio segmentation according to types of debtors and debtors’ financial solvency assessment models, depending on the performed segmentation and accumulated bank statistical data, from the point of view of its suitability for Ukrainian banks, will enable the banks to choose the most suitable ones for implementation taking into account nature and complexity of operations performed.
Such approaches will be more adapted to minimum capital requirements, simultaneously agreeing with national supervisory priorities.

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    • Figure 1. The main stages and the flow of determining the debtors’ PD coefficients
    • Figure 2. Models used in international banking for assessing the debtors’ solvency
    • Table 1. Approaches to the bank’s loan portfolio segmentation
    • Table 2. Assessing the model suitability for determining the rating/class of different segments of the bank’s loan portfolio
    • Table 3. Models suitability for using by Ukrainian banks