Measuring Loss on Latin American Defaulted Bank Loans: A 27-Year Study of 27 Countries

Abstract

This article, based on a 27-year study, describes the characteristics of commercial and industrial loan defaults in Latin America (LA), including in particular the loss in the event of default (LIED). For banks, improved understanding of losses enables lenders to make better pricing decisions, to allocate capital more efficiently, and to obtain more accurate estimates of loan losses and valuations of existing loan portfolios. For investors, the benefit is a more informed decision about portfolio diversification. The article provides characteristics of 1,149 Latin American defaults, examines the distribution of defaults by country, depicts the stability of LA LIED by year, and reports the effects of sovereign events on Latin American corporate loan loss rates.

JEL Classification: F34, G21, G33