Creditworthiness Assessment for Credit Institutions and for the Risk Associated with Excessive Leverage toward Sustainable Performance

With the development of financial transactions, it has become necessary for parties to assess the creditworthiness of their counterparty before entering into an agreement. In this respect, z-scoring methods for assessing creditworthiness have been developed, credit risks have been regulated, and rat...

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Autores principales:	Razvan Sorin Șerbu, Laurentiu Paul Baranga, Ovidiu Gheorghe Petru
Formato:	article
Lenguaje:	EN
Publicado:	MDPI AG 2021
Materias:	leverage additional funds requirement risk level sustainable financial markets exposure increase techniques capital adequacy ratio Environmental effects of industries and plants TD194-195 Renewable energy sources TJ807-830 Environmental sciences GE1-350
Acceso en línea:	https://doaj.org/article/446dd0d057d942e6bfc78853f2d00aa5
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spelling	oai:doaj.org-article:446dd0d057d942e6bfc78853f2d00aa52021-11-11T19:20:53ZCreditworthiness Assessment for Credit Institutions and for the Risk Associated with Excessive Leverage toward Sustainable Performance10.3390/su1321115742071-1050https://doaj.org/article/446dd0d057d942e6bfc78853f2d00aa52021-10-01T00:00:00Zhttps://www.mdpi.com/2071-1050/13/21/11574https://doaj.org/toc/2071-1050With the development of financial transactions, it has become necessary for parties to assess the creditworthiness of their counterparty before entering into an agreement. In this respect, z-scoring methods for assessing creditworthiness have been developed, credit risks have been regulated, and rating providers have emerged to ensure a certain level of independence. This article introduces a z-scoring methodology, developed using principal component analysis, for assessing the creditworthiness of credit institutions; a methodology for determining the rating corresponding to the scoring obtained by the entities, developed through expert judgement; and an analysis of the existence of a significant correlation between z-scoring and the level of the leverage and capital adequacy ratios. Furthermore, considering that excessive leverage can have a negative impact on the creditworthiness of an entity, a methodology for assessing the leverage ratio is presented, along with a method for determining any additional own fund requirements where this ratio is above the regulated maximum level. The results obtained by applying the described methodologies to the data of the entities showed stable character. All these methodologies can be implemented by credit institutions to achieve better creditworthiness and business sustainability.Razvan Sorin ȘerbuLaurentiu Paul BarangaOvidiu Gheorghe PetruMDPI AGarticleleverageadditional funds requirementrisk levelsustainable financial marketsexposure increase techniquescapital adequacy ratioEnvironmental effects of industries and plantsTD194-195Renewable energy sourcesTJ807-830Environmental sciencesGE1-350ENSustainability, Vol 13, Iss 11574, p 11574 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	leverage additional funds requirement risk level sustainable financial markets exposure increase techniques capital adequacy ratio Environmental effects of industries and plants TD194-195 Renewable energy sources TJ807-830 Environmental sciences GE1-350
spellingShingle	leverage additional funds requirement risk level sustainable financial markets exposure increase techniques capital adequacy ratio Environmental effects of industries and plants TD194-195 Renewable energy sources TJ807-830 Environmental sciences GE1-350 Razvan Sorin Șerbu Laurentiu Paul Baranga Ovidiu Gheorghe Petru Creditworthiness Assessment for Credit Institutions and for the Risk Associated with Excessive Leverage toward Sustainable Performance
description	With the development of financial transactions, it has become necessary for parties to assess the creditworthiness of their counterparty before entering into an agreement. In this respect, z-scoring methods for assessing creditworthiness have been developed, credit risks have been regulated, and rating providers have emerged to ensure a certain level of independence. This article introduces a z-scoring methodology, developed using principal component analysis, for assessing the creditworthiness of credit institutions; a methodology for determining the rating corresponding to the scoring obtained by the entities, developed through expert judgement; and an analysis of the existence of a significant correlation between z-scoring and the level of the leverage and capital adequacy ratios. Furthermore, considering that excessive leverage can have a negative impact on the creditworthiness of an entity, a methodology for assessing the leverage ratio is presented, along with a method for determining any additional own fund requirements where this ratio is above the regulated maximum level. The results obtained by applying the described methodologies to the data of the entities showed stable character. All these methodologies can be implemented by credit institutions to achieve better creditworthiness and business sustainability.
format	article
author	Razvan Sorin Șerbu Laurentiu Paul Baranga Ovidiu Gheorghe Petru
author_facet	Razvan Sorin Șerbu Laurentiu Paul Baranga Ovidiu Gheorghe Petru
author_sort	Razvan Sorin Șerbu
title	Creditworthiness Assessment for Credit Institutions and for the Risk Associated with Excessive Leverage toward Sustainable Performance
title_short	Creditworthiness Assessment for Credit Institutions and for the Risk Associated with Excessive Leverage toward Sustainable Performance
title_full	Creditworthiness Assessment for Credit Institutions and for the Risk Associated with Excessive Leverage toward Sustainable Performance
title_fullStr	Creditworthiness Assessment for Credit Institutions and for the Risk Associated with Excessive Leverage toward Sustainable Performance
title_full_unstemmed	Creditworthiness Assessment for Credit Institutions and for the Risk Associated with Excessive Leverage toward Sustainable Performance
title_sort	creditworthiness assessment for credit institutions and for the risk associated with excessive leverage toward sustainable performance
publisher	MDPI AG
publishDate	2021
url	https://doaj.org/article/446dd0d057d942e6bfc78853f2d00aa5
work_keys_str_mv	AT razvansorinserbu creditworthinessassessmentforcreditinstitutionsandfortheriskassociatedwithexcessiveleveragetowardsustainableperformance AT laurentiupaulbaranga creditworthinessassessmentforcreditinstitutionsandfortheriskassociatedwithexcessiveleveragetowardsustainableperformance AT ovidiugheorghepetru creditworthinessassessmentforcreditinstitutionsandfortheriskassociatedwithexcessiveleveragetowardsustainableperformance
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Creditworthiness Assessment for Credit Institutions and for the Risk Associated with Excessive Leverage toward Sustainable Performance

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