An integrated credit rating and loan quality model: application to bank shipping finance

Assessing a borrower’s credit quality is a critical input for efficient bank loan facility allocation, particularly at phases of financial distress. An integrated credit rating model is proposed to borrowers’ credit rating in support of bank financing decisions. Based on a global bank survey, a core set of critical quantitative and qualitative criteria are initially identified and are subsequently weighted and rated, incorporating a dynamic multicriteria optimization approach. The issue of credit rating migration, inducing adjustments in bank financing decisions, is also investigated. The empirical findings can be instrumental to bank credit policy decisions and risk management.