Risk reduction in loans against receivables

Abstract

This paper studies the credit risk of loans against receivables in Brazil. We use proprietary data from a receivables registry center in Brazil, which allows us to qather relevant information from commercial transaction receipts at state treasury offices. We analyze 129,000 digital invoices (NF-e) from 3,459 firms that pledged receivables as collateral for loans from 240 financial intermediaries, totaling $633 million Reais. We use 10 types of events relative to the invoices, their value, and the time elapsed between their issuance and the loan request, to identify determinants of the later cancellation of these NF-e. Results suggest that these features are associated to the likelihood of cancellation of NF-e, and thus, to the quality of the receivables offered as collateral. These indicators can be incorporated into the credit-granting process of financial intermediaries, as a means to improve credit risk assessment, reduce the need for further collateral, increase the volume of the credit supply, and improve the pricing of these loans.