Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/286280 
Title (translated): 
Net flow rates frente a roll rates como metodologías de predicción en préstamos al consumo morosos
Year of Publication: 
2022
Citation: 
[Journal:] Revista de Métodos Cuantitativos para la Economía y la Empresa [ISSN:] 1886-516X [Volume:] 34 [Year:] 2022 [Pages:] 37-59
Publisher: 
Universidad Pablo de Olavide, Sevilla
Abstract: 
Roll rates and net flow rates can be seen as the evolution of ageing of accounts receivable and Markov chains. They are accepted methodologies to model the behavior of non-performing consumer loans by buckets and to predict losses, but we find that quite often they are wrongly used as interchangeable concepts, although roll rates track individual accounts across buckets in consecutive months and net flow rates just compare consecutive buckets in consecutive months. We determine their matrices of transition probabilities and analyze them in both stationary and steady-state conditions. Net flow rates have many advantages over roll rates, but a quite important finding for financial institutions and supervisors is that historical flow rates are not conservative for forecasting: when the level of new delinquencies soars, contemporary flow rates will tend to be lower than they would be in steady-state conditions, creating a feeling of false confidence and leading to the underestimation of future losses.
Subjects: 
roll rates
net flow rates
consumer credit risk
non-performing loans
default
delinquency
expected loss
JEL: 
C53
E58
G21
G28
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-sa Logo
Document Type: 
Article

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