Title: Modelling the probability of asset value covenant violations in shipping bank loans

Authors: Nikos D. Kagkarakis; Dimitris A. Tsouknidis

Addresses: Department of Maritime Studies, School of Maritime and Industrial Studies, University of Piraeus, Piraeus, Greece ' Department of Accounting and Finance, School of Business, Athens University of Economics and Business Athens, Greece

Abstract: This paper aims to model the probability of a borrower violating an asset value covenant in a shipping bank loan agreement, where the main collateral (the vessel) exhibits very high price volatility. We estimate a panel data regression model using the largest dataset of shipping bank loans examined to date. The results reveal that loan-specific variables, particularly the amount of loan, advance ratio, and existence of a holding company guarantee, are the most important factors affecting the probability of observing an asset value covenant violation. These results are important for ship-lending financial institutions because: 1) vessel prices serve as the main collateral in bank loan agreements; 2) vessel prices are significantly larger in magnitude and much more volatile when compared to other widely examined asset-backed loan agreements, such as mortgages.

Keywords: bank loans; asset value covenant; credit scoring models; shipping.

DOI: 10.1504/IJBAAF.2024.142704

International Journal of Banking, Accounting and Finance, 2024 Vol.14 No.3, pp.324 - 346

Received: 19 Sep 2023
Accepted: 18 Aug 2024
Published online: 18 Nov 2024 *

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