Assigning equity to mortgages

Article Abstract:

The amount of equity required to absorb the credit-related and interest rate-related risks of a current coupon fixed-rate mortgage is assessed. The analysis shows that while the regulatory standard of 2% is about 30% too much for credit risk needs, it is too small for the overall risk of a mortgage, most of which derives from the borrower's capacity to prepay at par whenever he chooses. This suggests that those portfolio lenders who allot only the standard 2% are overstating the value of their mortgage assets.

Analysis, Portfolio management, Mortgages

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Revisiting customer retention

Article Abstract:

Customer retention is only one aspect of customer relations, despite its direct effect on tenure. Other factors of customer management affect the cash flow of a bank aside from tenure. For example, the value-creation potential of customers will determine whether the transaction will be profitable or not. Therefore, the profitability of a bank will depend on the quality of its customer base and not only its quantity.

Commercial Banks, Banking industry, Evaluation, Customer relations, Public relations

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