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Predicting Bank CAMELS and S&P Ratings: The Case of the Czech Republic

Listed author(s):
  • Alexis Derviz
  • JiÅí Podpiera

This paper investigates the determinants of the movements in the capital-assets-management-earnings-liquidity-sensitivity to market risk (CAMELS) and the longterm Standard & Poors (S&P) bank ratings in the Czech Republic during the periods when the three largest banks, representing approximately 60 percent of the Czech banking sector's total assets, were first privatized (1998-2001) and then had sufficient time to operate under new owners (2002-2005). The same list of explanatory variables employed by the Czech National Bank's banking sector regulators, corresponding to the inputs of the CAMELS rating, are examined for both ratings to select their significant predictors. We employ an ordered-response logit model to analyze the long-run S&P rating and a standard panel data framework for the CAMELS rating. We find significant explanatory power for capital adequacy, funding spread, the ratio of total loans to total assets, the value-at-risk for total assets, and leverage.

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File URL: http://mesharpe.metapress.com/link.asp?target=contribution&id=E80UN7M44WU3K2J1
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Article provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.

Volume (Year): 44 (2008)
Issue (Month): 1 (January)
Pages: 117-130

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Handle: RePEc:mes:emfitr:v:44:y:2008:i:1:p:117-130
Contact details of provider: Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024

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  1. Kadri Männasoo & David G Mayes, 2005. "Investigating the Early Signals of Banking Sector Vulnerabilities in Central and East European Emerging Markets," Bank of Estonia Working Papers 2005-08, Bank of Estonia, revised 10 Oct 2005.
  2. Alexis Derviz & Narcisa Kadlcakova, 2001. "Methodological Problems of Quantitative Credit Risk Modeling in the Czech Economy," Archive of Monetary Policy Division Working Papers 2001/39, Czech National Bank.
  3. Gropp, Reint & Vesala, Jukka & Vulpes, Giuseppe, 2002. "Equity and bond market signals as leading indicators of bank fragility," Working Paper Series 0150, European Central Bank.
  4. Shumway, Tyler, 2001. "Forecasting Bankruptcy More Accurately: A Simple Hazard Model," The Journal of Business, University of Chicago Press, vol. 74(1), pages 101-124, January.
  5. Rebel Cole & Jeffery Gunther, 1998. "Predicting Bank Failures: A Comparison of On- and Off-Site Monitoring Systems," Journal of Financial Services Research, Springer;Western Finance Association, vol. 13(2), pages 103-117, April.
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