A multi-criteria decision analysis for the assessment of the real estate credit risks

Abstract

Following the approval of the Basel capital adequacy framework, the credit institutions had to adapt their skills to determine regulatory capital. In this regard, the methodologies defined by the Third Basel Accord [2] have some limits concerning the subjectivity of some aspects and the complexity of the valuation models, especially for the smaller credit institutions that lack suitable corporate structures capable of efficiently applying the established procedures. In order to overcome these issues, the Income Producing Real Estate Risk Index ($$I:{IPRE,risk}$$) is proposed in this work to provide a synthetic index of multi-criteria derivation as a useful reference in the decision-making processes relating to restructuring and debt relief operations.