Bank Ratings
For banks, we examine key quantitative factors such as asset quality, capital adequacy, liquidity and profitability. Performance ratios relating to the breakdown of the balance sheet and profit and loss account and their rates of growth are analysed. Calculations are complemented by peer group and trend analysis. We also look at factors that may be important for longer term creditworthiness, such as the bank’s market position, business strategy and management capabilities. We also analyse the bank’s operating environment, including the degree of economic and political risk in the bank’s principal markets and the quality of the regulatory and supervisory environment in which it operates.
Foreign and local currency ratings take into account the economic, financial and country risks that may affect creditworthiness, as well as the likelihood that an entity would receive external support in the event of financial difficulties.
Bank Standalone Ratings (BSRs) provide a forward-looking view of the intrinsic, standalone credit strength of rated banks, that is, the ability of banks to meet financial obligations on an ongoing basis without requiring extraordinary support from owners or the government and in the absence of extraordinary interference, including government-imposed transfer, convertibility, and deposit withdrawal restrictions (i.e. sovereign interference risk).
Operating Environment Risk Anchor (OPERA)
OPERA encapsulates our assessment of the political, economic, institutional and system-wide factors that may impact the standalone financial strength of a bank and is, therefore, a key element of the Bank Standalone Rating (BSR).
OPERA is not a credit rating and differs from sovereign ratings, which are an opinion on the likelihood of a government defaulting on its financial obligations. However, since many of the economic and institutional factors that affect bank financial soundness also matter for sovereign credit risk, and given the association between systemic banking crises and sovereign debt crises, a country’s OPERA will normally be highly correlated with the sovereign’s long-term foreign currency rating.
To assign OPERA we consider a number of key rating factors across five analytical dimensions:
Core Financial Strength (CFS)
Having established OPERA, we then evaluate the intrinsic financial, operational and business strength of the rated bank, which we summarise in the Core Financial Strength (CFS) rating.
Extraordinary Support Level (ESL)
Once we have established the BSR, we evaluate the likelihood that in the event of difficulties the bank would receive sufficient and timely extraordinary external support to enable it to remain current on its liabilities and avoid a payments default or insolvency.