Title: Credit rating migration risk and interconnectedness in a corporate lending network
Authors: Masayasu Kanno - Nihon University (Japan) [presenting]
Abstract: The aim is to assess the credit rating migration risk and interconnectedness among bank-to-listed firms and insurer-to-listed firms in Japan's corporate lending market during the fiscal years 2008-2015. First, a portfolio credit risk analysis is conducted by using outstanding lending data with borrowers and lenders names. The results show an expected shortfall with tail dependence of $t$-copula captures the heavy-tailed risk of Japanese institutions. Subsequently, the network structure of lending contracts is analyzed using network centrality measures. From the perspective of network, institutions play a central role in terms of degree centrality. Further, a stress test is undertaken by using a historical economic scenario pertaining to a credit rating migration matrix shortly after the Lehman Brothers' bankruptcy. The test finds a much sparser network structure because of a large number of firm defaults. The analysis offers banks and insurers important implications regarding the credit risk management of corporate lending.