Structural credit risk modeling using Merton model and its default probability: A case study of commercial banks in Namibia

This research work presents a comprehensive study on commercial banks in Namibia, focusing on three main banks over the period from December 2011 to December 2021. The primary objective is to assess the credit risk position in the light of the Merton Structural credit Risk Model. The financial statements of these banks are analysed, specifically the balance sheets and statements of income, to extract relevant information for the computation of various ratios. The ratios examined include the working capital, total assets, retained earnings before interests and taxes ratio, and sales over total assets ratio. These ratios serve as risk factors for both the Merton Model and within the logit model framework. The Merton approach is utilized to estimate the default risk for the three commercial banks in Namibia, and the accuracy of these estimates is assessed using a range of different techniques. The efficiency of the estimates is assessed by testing the extent to which the predictive power of the estimates could be improved by incorporating other information publicly available in company accounts. The event of default is determined by the market value of the bank’s assets in conjunction with the liability structure of the bank. When the value of the assets falls below a certain default point, the firm is considered to default. Through this research, valuable insights into the financial performance and default risk of the commercial banks in Namibia are gained, contributing to a deeper understanding of the banking sector in the country

Grantor dc:publisher

University of Namibia

Year dc:date.issued

2024

Author dc:creator

• Shaanika, Aina

Advisor dc:contributor.advisor

• Gnitchogna, Rodrigue

• Credit risk
• Financial statements
• Merton structural Model
• Logit model
• Default risk
• Namibia
• University of Namibia

Language dc:language.iso

en

Handle dc:identifier.uri

http://hdl.handle.net/11070/3974

OAI identifier oai:identifier

oai:repository.unam.edu.na:11070/3974