## Bottom-Up Default Analysis of Corporate Solvency Risk: An Application to Latin America

_IMF Working Papers, June 8, 2017_

## Source details

**Canonical URL:** [Bottom-Up Default Analysis of Corporate Solvency Risk: An Application to Latin America](https://www.imf.org/en/publications/wp/issues/2017/06/08/bottom-up-default-analysis-of-corporate-solvency-risk-an-application-to-latin-america-44963)

## Other formats

- [Markdown version](/en/publications/wp/issues/2017/06/08/bottom-up-default-analysis-of-corporate-solvency-risk-an-application-to-latin-america-44963/index.md)
- [Structured JSON version](/en/publications/wp/issues/2017/06/08/bottom-up-default-analysis-of-corporate-solvency-risk-an-application-to-latin-america-44963/index.json)
- [Bundle manifest](/en/publications/wp/issues/2017/06/08/bottom-up-default-analysis-of-corporate-solvency-risk-an-application-to-latin-america-44963/bundle-manifest.json)

## Bibliographic details
- Authors: Jorge A Chan-Lau, Cheng Hoon Lim, Jose Daniel Rodríguez-Delgado, Bennett W Sutton, Melesse Tashu
- Published: June 8, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484302811.001

---

### Overview
- Proposes a Bottom-Up Default Analysis that projects probabilities of default of individual firms conditional on macroeconomic conditions and financial risk factors.
- Enables a direct macro-financial link to assessing corporate performance and facilitates what-if scenarios.
- Applied to the corporate sector of the five largest economies in Latin America as an illustration.

### Methodology
- Projects firm-level probabilities of default (PDs) conditional on:
  - Macroeconomic conditions.
  - Financial risk factors.
- Can be extended with credit portfolio techniques to aggregate firm-level outcomes to the banking sector level.

### Key Findings and Capabilities
- Allows assessment of corporate sector solvency risk through firm-level PD projections.
- Facilitates what-if scenario analysis linking macroeconomic shocks to firm solvency.
- When combined with credit portfolio techniques, permits assessment of the aggregate impact of changes in firm solvency risk on creditor banks’ capital buffers under different macroeconomic scenarios.

### Applications and Policy Relevance
- Illustrative application: corporate sectors in the five largest economies in Latin America.
- Relevant subject areas: Asset and liability management; Banking; Commercial banks; Commodity prices; Corporate sector; Economic sectors; Financial institutions; Liquidity indicators; Liquidity management; Loans; Prices.
- Keywords indicating analytic focus: asset correlation; asset ratio; asset value of the loan obligor; bank capital; bank capital data; coverage ratio; debt maturity; debt ratio; default risk; economic scenarios; forward intensity models; interest rate; loan default; loss distribution; Macro-financial; PD contribution; return on assets; simulation.

---

## Content in this bundle

- **Bottom-Up Default Analysis of Corporate Solvency Risk, WP/17/133, June 2017**
  - [Bottom-Up Default Analysis of Corporate Solvency Risk, WP/17/133, June 2017 (Markdown version)](/-/media/files/publications/wp/2017/wp17133.pdf.md){rel="alternate" type="text/markdown"}
  - [Bottom-Up Default Analysis of Corporate Solvency Risk, WP/17/133, June 2017 (PDF)](/-/media/files/publications/wp/2017/wp17133.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2017/06/08/bottom-up-default-analysis-of-corporate-solvency-risk-an-application-to-latin-america-44963_