Operational drivers affecting credit risk of mutual guarantee institutions

Abstract

Purpose

The purpose of this paper is to investigate the drivers influencing the risk of default on mutual guaranteed loans. The authors aim to verify whether default is influenced by the specific business policies of mutual guarantee institutions (MGIs) and to recommend guidelines for directing their operating management.

Design/methodology/approach

The authors analyse the guaranteed portfolios of 19 Italian MGIs and investigate the determinants of the defaulted positions at the end of June 2011. The sample consists of 167,777 guaranteed loans, of which 11,349 are in default. Using regression models, we identify the variables related to the business model of MGIs that are significantly associated with default on their positions.

Findings

The defaulted positions of MGIs are significantly correlated with the type of issued guarantees. This condition should be considered in defining product and price policies.

Practical implications

The authors identify some critical issues in the risk-taking processes of MGIs. The tested hypothesis highlights the opportunities for the optimisation of guaranteed loan portfolios, which is necessary for reducing the profitability/liquidity pressures of these financial institutions and enhancing their efficiency as instruments for mitigating the effects of credit rationing and promoting the revitalisation of small-and medium-sized enterprises.

Originality/value

The results are based on an original and reserved dataset, which is not available in public financial statements or public statistics, but is collected directly from the MGIs that are part of the study.

Citation

Gai, L. and Ielasi, F. (2014), "Operational drivers affecting credit risk of mutual guarantee institutions", Journal of Risk Finance, Vol. 15 No. 3, pp. 275-293. https://doi.org/10.1108/JRF-12-2013-0087