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Predicting Bank Financial Strength Ratings in an Emerging Economy: The Case of Turkey

Author

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  • Hulisi Ögüt

    (Department of Business Administration, TOBB University of Economics)

  • M. Mete Doganay
  • Nildag Basak Ceylan
  • Ramazan Aktas

Abstract

The recent global financial crisis shows us that the rating of bank’s financial strength can be very misleading. As the credibility of the credit rating agencies has been shaken, the objectivity of the credit rating agencies has been questioned. Based on this observation, we investigate whether the forecast of the rating of bank’s financial strength using the publicly available data is consistent with those of the credit rating agency. The data of Turkish banks is used for this investigation. Furthermore, we identify the variables that play an important role in assigning these ratings. For this purpose, we used quantitative proxies for some qualitative factors that are used by Moody’s. The important factors in these ratings are profitability (measured by return on equity), efficient use of resources, and funding of businesses and households instead of government.

Suggested Citation

  • Hulisi Ögüt & M. Mete Doganay & Nildag Basak Ceylan & Ramazan Aktas, 2012. "Predicting Bank Financial Strength Ratings in an Emerging Economy: The Case of Turkey," Working Papers 740, Economic Research Forum, revised 2012.
    • Handle: RePEc:erg:wpaper:740
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    References listed on IDEAS

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    1. Poon, Winnie P. H. & Firth, Michael & Fung, Hung-Gay, 1999. "A multivariate analysis of the determinants of Moody's bank financial strength ratings," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 9(3), pages 267-283, August.
    2. Kuldeep Kumar & Sukanto Bhattacharya, 2006. "Artificial neural network vs linear discriminant analysis in credit ratings forecast: A comparative study of prediction performances," Review of Accounting and Finance, Emerald Group Publishing, vol. 5(3), pages 216-227, August.
    3. Michael Doumpos & Fotios Pasiouras, 2005. "Developing and Testing Models for Replicating Credit Ratings: A Multicriteria Approach," Computational Economics, Springer;Society for Computational Economics, vol. 25(4), pages 327-341, June.
    4. Martin, Linda J. & Henderson, Glenn V., 1983. "On Bond Ratings and Pension Obligations: A Note," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 18(4), pages 463-470, December.
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