Interpretation Of Loan Losses Compared To Percentage Of Total Loans

Question

A.    A regression of sectoral loan losses against total loans losses, both measured as a percentage of total loans, of a bank results in the following beta coefficients for the real estate (RE) and commercial (CL) loan variables: bRE = 1.2, bCL = 1.6. The intercept for both regressions is zero.

1. The results indicate that for the bank
    a. the real estate loan losses were systematically lower than the total loan losses.
    b. the real estate loan losses were systematically higher than the total loan losses.
    c. the commercial loan losses are systematically higher than the total loan losses.
    d. Answers A and C.
    e. Answers B and C.

2. The results can be interpreted as

a.    If the total loan losses of the bank measured as a percentage of total loans is 2 percent, the losses in the real estate sector, measured as a percentage of total loans, is 1.2 percent.
b.    If the total loan losses of the bank measured as a percentage of total loans is 2 percent, the losses in the commercial sector, measured as a percentage of total loans, is 3.2 percent.
c.    If the total loan losses of the bank measured as a percentage of total loans is 2 percent, the losses in the commercial sector, measured as a percentage of total loans, is 6.4 percent.
d.    If the total loan losses of the bank measured as a percentage of total loans is 3 percent, the losses in the commercial sector, measured as a Percentage of total loans, is 5.2 percent.
e.    If the total loan losses of the bank measured as a percentage of total loans is 3 percent, the losses in the real estate sector, measured as a percentage of total loans, is 4 percent.

Summary

The question belongs to Finance and it is about intercepting regression of sectoral loan losses against total loan loses measured as percentage of total loans in the banks.

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