The banks valuations have dropped significantly over the last year, presumably because the market does not know how much of their loans will turn bad, Is there any way of estimating this, i know it is very subjective, presumably a loan is an asset on the banks balance sheet that is if it doesn't turn bad, is their any way of finding out how much loans were lent out for mortgages per year, then you can assume that the older mortgages have less risk of turning bad, is there any easy way of finding this information
Banks, how to estimate bad debts?
- Thread starter joe sod
- Start date
) in the bum then I too would be skeptical about how reliable they were.
R
rmelly
Guest
I also think some (or indeed all) of the current crop have been badly tainted by the current 'crisis' and it's knock on effects.
http://www.nytimes.com/2008/04/27/magazine/27Credit-t.html
http://www.nytimes.com/2008/04/27/magazine/27Credit-t.html
but that is the banks own bad debt provision for this year, is their anyway of estimating how much stress the bank could cope with, in other words the maximum amount of loans going bad but the bank being able to keep operating, is there a percentage beyond which the bank can't operate, im just trying to estimate a margin of safety, my thinking is that if there were to be large default it would happen over a relatively short period as the most stressed borrowers would give in at the same time more or less, so the bank could take a large hit in one year which a bad debt provision would not account for.
Not quiet sure what you are trying to get at but a bank can continue to operate despite massive loan losses as long as they have the capital to do so. The important figure to look at these days is the banks capital ratio's both Tier 1 and Total Capital. Compare the non-performing loan figure to these. This will give you an idea what sort of losses the bank can withstand without having to raise more money or in a doomsday scenario go out of business.