Comparative Analysis of Credit Risk Models in Relation to SME Segment

Authors

PLÍHAL Tomáš SPONEROVÁ Martina SPONER Miroslav

Year of publication 2018
Type Article in Periodical
Magazine / Source Financial Assets and Investing
MU Faculty or unit

Faculty of Economics and Administration

Citation
Web Financial Assets and Investing
Keywords credit risk; bankruptcy prediction; SME; bankruptcy model; probability of default
Attached files
Description The importance of credit risk management is well known and was deeply investigated by the banking industry. There is a pressure on financial institutions to still improve their credit risk management systems, so the credit risk of a bank is an unflagging object of a discussion. The aim of this article is the comparison of the predicting abilities of several bankruptcy models to SME segment in the Czech Republic and its subsegments - medium sized, small sized and micro sized enterprises. We have focused on small and medium sized enterprises (SMEs) considering the fundamental role played in the Czech economy and the considerable attention placed on SMEs. We have chosen popular bankruptcy models, that are often applied, namely the Altman Z-score, Altman model developed especially for SMEs in 2007, the Ohlson O-score, the Zmijewski’s model, the Taffler’s model, and the IN05 model. The basic form of the models was used as proposed by their authors. The results were compared using the contingency table and ROC curve. We have found that the best prediction models are Zmijewski´s and Ohlson´s models which use probit and logit methodologies and according to our analysis, their prediction ability are better than models based on discriminant analysis. Surprisingly, model IN05 designed for Czech companies provides only average results. The one of the worst performing models is Altman 2007, which was created specifically for SMEs, but according to our analysis it provides only subordinates results.
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