1 credit performance of the uk smes through the crisis jake ansell credit research centre, the...
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Credit performance of the UK SMEs Through the Crisis
Jake AnsellCredit Research Centre,
The University of Edinburgh Business [email protected]
Joint work with Dr Galina Andreeva, Paul Orton,Dr Ma Yigui and Ma Meng
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Outline
• Background
• Data
• Cross-sectional Analysis
• Panel Data with Dummies
• Panel Data with Macroeconomic Variables
• Future plans?
• Conclusion
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SMEs - Cornerstone of the Economy
Globally 95% Businesses are SMEs, 50% of economic value, 55% of all innovations
EU 99% Businesses are SMEs, 68% of total employment, 63% of overall business turnover
UK 99% Businesses are SMEs, 59% of total employment, 50% GDP
Similar picture for Asian economies
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Lending in UK
• Concern over lending to SMEs in UK (£991m in 2008, £566m in 2010)
• Prudent lending requires more stringent criterion
• SMEs more conservative in recessionary periods
• Anecdotal information that some SMEs feel credit constraints
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Credit Scoring and SMEs
• Business Managers assessing clients – picking winners (Very old model)
• Business Relationship Management – plausible for high value clients less for SMEs
• But need fast efficient methods credit decisions for many small businesses – Credit Scoring
• More recently ‘Management Capability’ – Ma Yigui, Andreeva and Ansell (2011)
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Credit risk approaches
• Lending to individuals
- Relatively small amounts of money lent to a large number of customers
- focus more on prediction, less on causality
- Management Science and Data Mining
• Lending to businesses
- Large amounts of money lent to a relatively small number of businesses
- focus more on causality, less on prediction
- Finance and Accounting
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Data
• There are about 5 million SMEs in UK• Not all SMEs borrow from banks• Database from a Credit Agency• Over 2 million enterprises • Recorded each April: 2007, 2008, 2009 &
2010
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Data
• Financial Impairment: Good/Bad• General Information: legal form, region, SIC, #
Employees, Age of Company• Directors’ Information: # Directors, Ownership,
Changes etc• Previous Credit history: DBT, judgements etc• Accounting Information: Common financial
variables and financial ratios
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Impairment Rate in UK (%)
9
2006 2007 2008 2009 2010 20110
2
4
6
8
10
12
14
16
18
Series1
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Impairment Rate by Region
10
0
5
10
15
20
25
2007 2008 2009 2010
London
Scotland
North East
North West
West Midlands
Wales
South West
East Midlands
South East
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Impairment by SIC code
11
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Impairment by Age
12
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Initial Analysis
• Cross-Sectional Analysis• Logistic Model Predicting Default• Model Used Weights of Evidence • Stepwise Regression using % change in
Cox & Snell (Nagelkerke)• Interest in Performance and Variable
Inclusion
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Cox and Snell/Nagelkerke
2007 All 0.120 0.300
Start-Up
0.149 0.324
Non SU 0.052 0.196
2008 All 0.207 0.390
Start-Up
0.235 0.390
Non SU 0.126 0.336
2009 All 0.308 0.517
Start-Up 0.329 0.500
Non SU 0.205 0.427
2010 All 0.211 0.401
Start-Up 0.238 0.393
Non SU 0.148 0.372
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AUROC Results
15
In
SampleCI CI 2007 Difference
All 0.82 0.816 0.824 0.82 0
2007Start-Up
0.82 0.8155 0.8245 0.82 -0.003
Non SU 0.794 0.785 0.803 0.793 0.002
All 0.852 0.849 0.854 0.841 0.011
2008Start-Up
0.84 0.837 0.844 0.826 0.014
Non SU 0.843 0.837 0.85 0.837 0.006
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AUROC Results
16
In
SampleCI CI 2007 Difference
All 0.886 0.884 0.888 0.876 0.01
2009 Start-Up 0.868 0.865 0.87 0.853 0.015
Non SU 0.87 0.865 0.874 0.889 -0.019
All 0.851 0.849 0.854 0.84 0.011
2010 Start-Up 0.83 0.826 0.833 0.811 0.019
Non SU 0.85 0.845 0.856 0.851 -0.001
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2Comments
• Whilst R2 are low the predictive quality is high in sample and out sample
• No out of time results• Modelling was naïve• There is some stability over variables or
type of variables• There is stability over time – could be due
to nature of variables employed
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Panel Analysis
• Obviously can trace behaviour of individual enterprises over time
• But only have 4 observation points• Modelling default – No loss measurment• Good = 0, Bad = 1• Logit Panel Data Model:
Log(Pg/Pb) = ai+bixii+di+sii
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Panel Analysis
• Produce Cross-Section Models each Year• Using Panel Sample Tracking Enterprises• Panel Analysis and Panel Analysis with
Dummy for Years• Coefficients of Model, Performance,
Absolute Mean Square Error
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Impairment in Panel Sample
20
2007 2008 2009 20100.00
5.00
10.00
15.00
20.00
25.00
30.00
non_startups startups whole sample
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Non-Start-Ups: SIC Code
21
APR07 APR08 APR09 APR100
0.05
0.1
0.15
0.2
0.25
0.3
Non-Start-up SMEs 'Bad' Rate: 1992 SIC Code
missing
angriculture
manufacture
constraction
retail trade
hotels and restaurants
transport, storage
financial intermediation
property manegment
computers
R&D legal consult
other professional
education, health and social
private households with employee
Axis Title
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Non-Start-Up by Region
22
APR07 APR08 APR09 APR100
0.05
0.1
0.15
0.2
0.25
0.3
LondonScotlandEast MidlandsWest MidlandsNorth WestNorth EastWales/South WestSouth WestSouth EastOther
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Variable Start-Up Model
23
1. Legal Form8. Total Value Of Judgements In The Last 12
Months
2. Company is Subsidiary 9. Number Of Previous Searches (last 12m)
3. 1992 SIC Code 10. Time since last derogatory data item (months)
4. Region 11. Lateness Of Accounts
5. Proportion Of Current Directors To Previous Directors In The Last Year
12. Time Since Last Annual Return
6. Oldest Age Of Current Directors/Proprietors supplied (Years)
13. Total Assets
7. Number Of Directors Holding Shares
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Start-Up Models’ Coefficient
24 Variable in list order
0 1 2 3 4 5 6 7 8
-10
-5
0
5
10
15
2007200820092010PanelPanel + Year
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Start-Up Models’ Coefficient
25 Variable in list order
7 8 9 10 11 12 130
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2007200820092010PanelPanel + Year
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Non-Start-up Variables
26
1. Legal Form 9. Number Of Previous Searches (last 12m)
2. Parent Company – derog details 10. Time since last derogatory data item (months)
3. 1992 SIC Code 11. Lateness Of Accounts
4. Region 12. Time Since Last Annual Return
5. No. Of ‘Current’ Directors 13. Total Fixed Assets As A Percentage Of Total Assets
6. Proportion Of Current Directors To Previous Directors In The Last Year 14. Debt Gearing (%)
7. PP Worst (Company DBT - Industry DBT) In The Last 12 Months 15. Percentage Change In Shareholders Funds
8. Total Value Of Judgements In The Last 12 Months 16. Percentage Change In Total Assets
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Non-Start-up Results
27Variable list order
0 1 2 3 4 5 6 7 8 9
-5
-4
-3
-2
-1
0
1
2007200820092010PanelPanel+Year
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Non-Start-up Results
28Incept + variable in listed order
8 9 10 11 12 13 14 15 16 17
-0.5
0
0.5
1
1.5
2007200820092010PanelPanel+Year
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Dummy Effects
29
1 2 3
-4
-3.5
-3
-2.5
-2
-1.5
-1
-0.5
0
nonst
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Panel with Macro-economic Variable
Currently Exploring of Macro-economic Variables:
1. UNEMPLOYMENT RATE
2. INFLATION ANNUAL CHANGE
3. CPI
4. CPI ANNUAL CHANGE
5. FTSE ALL SHARE INDEX CHANGE
6. FTSE100 ANNUAL INDEX CHANGE
7. FTSE 100 ANNUAL RETURN
30
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Annual Macro variables
31
2005 2006 2007 2008 2009 2010 2011
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
Annual MVs GDP growth rate
ftsall index change rate
unemployment
inflation
FTS100 change rate
CPI rate
non_year dummy
non_default rate
st_year dummy
st_default rate
whole sample default rate
Axis Title
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Averaged Annual Macro Variables
32
2007 2008 2009 2010
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Averaged Annual MVs
gdp_growth ratecpirftsall indexunemploymentinflationFTS100non_year dummynon_default ratest_year dummyst_default ratewhole sample default rate
Axis Title
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Correlations
gdp3 FAI une infl F100 cpir
gdp31
FAI0.993632 1
une0.791506 0.786689 1
infl-0.98125 -0.95905 -0.7189 1
F1000.978212 0.986059 0.781223 -0.9262 1
cpir0.948904 0.972196 0.826953 -0.87191 0.982503 1
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Start-Up Models
34
1 2 3 4 5 6
GDP Growth
GDP Growth Lag 1
GDP Growth Average
last 3 Years
GDP Growth
GDP Growth Lag 1
GDP Growth Average
last 3 Years
RPI RPI Lag 1RPI
Average Last 3 Years
FTSE 100 FTSE 100 Lag1
FTSE Average Last 3 Years
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Start-up Models
35
0 2 4 6 8 10 12 14
-8.0000
-7.0000
-6.0000
-5.0000
-4.0000
-3.0000
-2.0000
-1.0000
0.0000
1.0000
2.0000
Series1Series3Series5Series7Series9Series11
Incept + variable in listed order
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Non-Start-Up Models
36
1 2 3 4 5 6GDP
Growth Average Last 3 Years
GDP Growth Average Last 3 Years
GDP Growth Lag 1
GDP Growth Lag 1
GDP Growth
GDP Growth
RPI Average Last 3 Years
FTSE 100Lag 1
CPI
FTSE 100 Average Last 3 Years
RPI Lag 1
FTSE 100
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Non Macro-Economic Variables
37
0 2 4 6 8 10 12 14 16 18
-3.5
-3
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
123456
Incept + variable in listed order
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Start-Up Performance
38
logistic regressionpanel modelpanel model with year dummypanel model with selected no lagged MV (highest AIC in each category)panel model with selected one year lagged MV (highest AIC in each category)panel model with selected averaged MV (highest AIC in each category)panel model with no lagged GDP_growth ratepanel model with one year lagged GDP_growth ratepanel model with averaged GDP_growth rate
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AUROC Within Sample
39
0 1 2 3 4 5 6 7 8 9 10.700
.720
.740
.760
.780
.800
.820
.840
.860
.880
.900
models in listed order
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Non-Start-Up Model
40
logistic regressionpanel modelpanel model with year dummypanel model with selected no lagged MV (highest AIC in each category)panel model with selected one year lagged MV (highest AIC in each category)panel model with selected averaged MV (highest AIC in each category)panel model with no lagged GDP_growth ratepanel model with one year lagged GDP_growth ratepanel model with averaged GDP_growth rate
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AUROC In Sample
41
0 1 2 3 4 5 6 7 8 9 10.740
.760
.780
.800
.820
.840
.860
.880
.900
.920
models in listed order
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Out-of-Sample Performance 2010
42
Model Non St
logistic regression .837 .753
panel model .828 .757
panel model with year dummy .843 .769
panel model with selected no lagged MV (highest AIC in each category)
.843.758
panel model with selected one year lagged MV (highest AIC in each category)
.843.758
panel model with selected averaged MV (highest AIC in each category)
.843.758
panel model with no lagged GDP_growth rate .833 .759
panel model with one year lagged GDP_growth rate .832 .758
panel model with averaged GDP_growth rate .842 .758
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Future?
• Continue to explore macro-economic variables
• Model based on normal • Non-parametric models• Larger range of data• Out-of-Time Sample
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Conclusion
• There is considerable stability across models
- Estimates
- Performance Variables• Some variables need reconsideration• GDP seems an important Macro-economic
variables• BUT need further exploration
44