Analyses of empirical default ratios and default probabilities provide the foundation for a risk-adequate credit management system. The identification of trends, meanwhile, only serves as a starting point for a systematic risk evaluation process. Many analyses fail to differentiate sufficiently between companies, not taking into account their structural features. They may not adequately consider structural characteristics within a given customer portfolio or incorrectly reflect the risk situation of a credit portfolio. It is important to recognize that the underlying risks of a customer portfolio can vary substantially depending on factors such as company size and industry.
Creditreform Rating studies and evaluates the risk situation of Germany enterprises bi-annually by calculating empirical default ratios on the basis of the Creditreform database. This database contains information about approx. three million active German-domiciled businesses, providing a complete picture of the German economy. It is generally accepted that Creditreform owns the world’s most comprehensive database of German businesses. For the purpose of its default studies, Creditreform Rating is using a default definition that complies with the stipulations of Basel III.