The common drivers of default risk

• Analysis of common drivers of credit risk for German banks.
• Dataset on credit exposure to 27 industries and the corresponding write-downs.
• Main risk drivers: national and global economic conditions, industry and maturity.
• Common drivers account for only 8% of the serial variation in the write-down rate.
• For nationwide operating banks: 26% of this variation is accounted for.

Using a unique data set on German banks’ loans to the German real economy, we investigate banks’ credit risk. This data set contains the volume of loans, and write-downs on loans, per bank and industry. Our empirical study for the period 2003–2011 yields the following results: (i) alongside the average nationwide credit loss rate, industry composition, regional factors, and the state of the global economy, the loans’ maturity structure is identified as an additional driver of the bank-wide loss rates in the credit portfolio. (ii) The nationwide loss rate has the largest impact, followed by the maturity structure and the industry composition. (iii) For nationwide banks, these common factors explain about 26% of the time variation in the loss rate of credit portfolios; for regional banks, this figure is less than 8%.