International Bank Ratings - The Rating Agenciesí Methodologies

Tuesday, December 5

09.00 - 09.15 Welcome and Introduction

09.15 - 09:45 A global overview about current ratings and their relevant peer groups, as well as international rating agency criteria for various sectors.

09:45 - 12:15 Session 1: Standard & Poor's bank rating criteria

  • Banking Industry Country Risk Assessment:
    • Economic risk
    • Regulatory mechanisms
  • Bank specific analysis:
    • Business position (bank strategy, concentration, etc.)
    • Capital and earnings (quality of capital, etc.)
    • Risk position (growth and changes, complexity, etc.)
    • Funding & liquidity position
  • Standard & Poor's approach through adjusted key ratios and evaluation of individual rating factors

After completing session 1, participants will be able to analyse a bank's economic risk and relate it to the country's regulatory mechanisms. This is important in order to appraise the environment in which some banks operate. Participants will further experiment with bank intrinsic creditworthiness, taking into account the business positioning and capital requirements, including the impact on bank credit ratings. After completing the session participants will further be able to explain the effect of an improving or deteriorating risk position and relate it to a bank's funding & liquidity position. The participant will deep dive into Standard & Poor's approach of assessing credit risk, which very much focuses on the agency's own calculation of key ratios.

12:15 - 13:15 Lunch

13:15 - 13:45 Session 2: Other relevant methodologies

  • S&P External support mechanisms:
    • Government support
    • Group support
    • ALAC (additional loss absorbing capacity)

After completing session 2, participants will develop a broader point of view about the different global support mechanisms and analyse which mechanism is to be utilized in distinctive ownership structures.

13:45 - 14:00 Recap of Standard & Poor's bank rating criteria

14:00 - 16:00 Special Case Study session: Standard & Poor's

  • Analyse S&P rating reports, prepared as case studies
    • Read the reports and mark the most important rating factors.
    • Conceive additional information, which is not rating relevant.
    • Find out which rating factors are not described in the report at all, and what the reason could be.
    • Comprehend the rating reports between the lines, i.e. to discover not obvious information.
    • Detailed analysis of rating factors that could go up or down in the next 12-24 months.
    • Find rating agencies' mistakes and ambiguities in the reports.

After completing the S&P case study session, participants will be able to retrieve the information in the latest rating reports and examine how S&P assesses credit risk. The participants will discover which information the rating agency shares and which information potentially remains encrypted, including categorizing the relevant rating factors and qualitative adjustments. This will lead participants to form their own opinions about credit risk on selected financial institutions. The participants will further examine how S&P uses public data and adjusts key ratios according to it own methodology.

16:00 - 16:30 Teaser for Moody's bank rating methodology

Wednesday, December 6

09:00 - 09:15 Recap

09:15 - 11:15 Session 3: Moody's bank rating criteria

  • Baseline Credit Assessment
    • Macro Profile (country risk, industry structure, etc.)
    • Financial Profile (asset risk, funding structure, etc.)
    • Qualitative adjustments (diversification, complexity, etc.)
  • Support & Structural analysis:
    • Affiliate support
    • Government support
  • Moody's and its emphasis on regulatory ratios

After completing session 3, participants will be able compare Moody's bank rating methodology with other international criteria, discovering the agency's approach of assessing macro risk, while relating it to a bank's intrinsic financial profile. Participants will identify situations where Moody's applies qualitative adjustments and analyse which effect they have on the final rating. Moody's global bank rating methodology as well takes into account various support mechanisms, and participants will classify the similarities and differences to other rating agencies' criteria.

11:15 - 12:15 Special: Case Study session: Moody's

  • Analyse Moody's rating reports, prepared as case studies
    • Read the reports and mark the most important rating factors.
    • Conceive additional information, which is not rating relevant.
    • Find out which rating factors are not described in the report at all, and what the reason could be.
    • Comprehend the rating reports between the lines, i.e. to discover not obvious information.
    • Detailed analysis of rating factors that could go up or down in the next 12-24 months.
    • Find rating agencies' mistakes and ambiguities in the reports.

After completing the Moody's case study session, participants will be able to retrieve the information in the latest rating reports and examine how Moody's assesses credit risk. The participants will discover which information the rating agency shares and which information potentially remains encrypted, including categorizing the relevant rating factors and qualitative adjustments. This will lead participants to form their own opinions about credit risk on selected financial institutions and compare the Moody's approach of using public financial data to other rating agencies' approaches.

12:15 - 13:15 Lunch

13:15 - 13:30 Recap of Moody's bank rating criteria

13:30 - 15:30 Session 4: Fitch bank rating criteria

  • Viability Rating
    • Operating environment (sovereign, economy, etc.)
    • Company profile (business model, etc.)
    • Management and strategy (corporate governance, etc.
    • Risk appetite (underwriting standards, risk controls, etc.)
    • Financial profile (asset quality, capitalization, etc.)
  • Support rating:
    • Sovereign support
    • Institutional support
  • Emphasis on Fitch significantly reduced use of quantitative measures, and importance for descriptive evaluation

After completing session 4, participants will be able to differentiate Fitch's approach of credit risk analysis from other global players' approaches. Participants will be able to analyse bank credit risk in the light of Fitch criteria and categorize the most important rating factors, in order to form their own opinions about a specific financial institution. Fitch`s significantly reduces the use of quantitative measures, rather the rating agency uses the approach of descripting evaluation. Discovering this approach of rating criteria will open up the participants' minds about how many possibilities there are in fact for assessing banks' credit risk and how many factors are being taken into account.

15:30 - 16:30 Recap for bank rating methodologies for S&P, Moody's and Fitch

Evaluation and Termination of the Seminar

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