A Markov Chain Model for the Cure Rate of Non-Performing Loans

TL;DR

This paper introduces a Markov-chain model to estimate the cure rate of non-performing loans, facilitating credit impairment calculations and portfolio optimization, especially benefiting smaller financial institutions with cost-efficient data handling.

Contribution

The paper presents a novel Markov-chain approach for estimating cure rates in non-performing loans, applicable to portfolio management and credit impairment assessment.

Findings

Model effectively estimates cure rates for non-performing loans

Applicable to portfolio optimization and credit impairment processes

Cost-efficient and suitable for smaller financial institutions

Abstract

A Markov-chain model is developed for the purpose estimation of the cure rate of non-performing loans. The technique is performed collectively, on portfolios and it can be applicable in the process of calculation of credit impairment. It is efficient in terms of data manipulation costs which makes it accessible even to smaller financial institutions. In addition, several other applications to portfolio optimization are suggested.