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Are Bank Ratings Coherent with Bank Default Probabilities in Emerging Market Economies ?

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Author Info
Christophe Godlewski (LaRGE, Institut d'Etudes Politiques, Université Robert Schuman, Strasbourg 3)

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Abstract

In this paper we investigate the coherence between bank ratings and default probability in emerging market economies using scoring and mapping techniques. In order to achieve its disciplining role, the rating should be coherent with the default risk it summarizes and disseminate. This issue is particularly crucial in emerging economies where under-developed financial markets, banking sector accrued opacity, and inadequate regulatory, institutional and legal environment affect banker’s risk taking behavior and bank’s default risk. Scoring results show a correct quantification of agency rating grades and thus their coherence. Mapping results show a tendency of the rating to aggregate bank’s default risk information into intermediate low category grades.

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Paper provided by EconWPA in its series Finance with number 0409023.

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Date of creation: 08 Sep 2004
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Handle: RePEc:wpa:wuwpfi:0409023

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Related research
Keywords: emerging market economies; default probability; bank rating; scoring and mapping methods;

Find related papers by JEL classification:
C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models
F39 - International Economics - - International Finance - - - Other
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kaplan, Robert S & Urwitz, Gabriel, 1979. "Statistical Models of Bond Ratings: A Methodological Inquiry," Journal of Business, University of Chicago Press, vol. 52(2), pages 231-61, April. [Downloadable!] (restricted)
  2. André Güttler & Walter Kraemer, 2008. "On Comparing the Accuracy of Default Predictions in the Rating Industry," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  3. Hand, John R M & Holthausen, Robert W & Leftwich, Richard W, 1992. " The Effect of Bond Rating Agency Announcements on Bond and Stock Prices," Journal of Finance, American Finance Association, vol. 47(2), pages 733-52, June. [Downloadable!] (restricted)
  4. Richard Cantor & Frank Packer, 1994. "The credit rating industry," Quarterly Review, Federal Reserve Bank of New York, issue Sum, pages 1-26.
  5. Shin, Yoon S. & Moore, William T., 2003. "Explaining credit rating differences between Japanese and U.S. agencies," Review of Financial Economics, Elsevier, vol. 12(4), pages 327-344. [Downloadable!] (restricted)
  6. Asli Demirgüç-Kunt, 1989. "Deposit-institution failures: a review of empirical literature," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 2-18. [Downloadable!]
  7. Patrick Honohan, 1997. "Banking system failures in developing and transition countries: Diagnosis and predictions," BIS Working Papers 39, Bank for International Settlements. [Downloadable!]
  8. Crouhy, Michel & Galai, Dan & Mark, Robert, 2001. "Prototype risk rating system," Journal of Banking & Finance, Elsevier, vol. 25(1), pages 47-95, January. [Downloadable!] (restricted)
  9. 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. [Downloadable!] (restricted)
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  1. Peresetsky, Anatoly A. & Karminsky, Alexandr A. & Golovan, Sergei V., 2004. "Probability of default models of Russian banks," BOFIT Discussion Papers 21/2004, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
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