In the paper an econometric method of rating scales mapping is suggested. The method is based on the setting up ordered choice models for the ratings and mapping the correspondent latent variables («continuous ratings») with a monotone function. The method takes into account bank's financial indicators and other factors which rating agency's experts use in their work. The method is tested on the real data on Russian banks' ratings and their quarterly balance sheet data for the period 2006:1-2010:4.
This paper presents results of an empirical study which explores Russian banks’ ratings by the econometric modeling method. The nexus was examined between ratings assigned by Moody’s, S&P and Fitch agencies in 2010-2013 years and banks’ financial indicators. Several hypotheses concerning the most promising ways to influence bank rating are tested. According to the research, (1) the most significant factors that reveal the tendency in assigning the rating by each agency during the whole tested period are total assets, liquidity and profitability. Besides, for different agencies’ ratings in some years significant factors are a sufficiency of the capital, activity of crediting of economy, quality of a credit portfolio; (2) The significance of the banks’ capital sufficiency, asset management policy (including liquidity) and profitability varies during the whole period. The impact of these indicators on ratings is higher during the periods following and (especially) previous to financial crises than in time of relative financial stability between crises when they have smaller impact on a rating; (3) financial policy pursued by the bank management can lead to the changes in its rating, at least for some agencies. However the same methods directed on the improvement of financial indicators will lead to the different results for different ratings’ changes. The specific efforts of management will appear more productive for increase of a rating of one agency, others will be less inclined to react to changes of financial performance of banks. The adequacy of obtained results is shown by means of juxtaposing with findings of other domestic and foreign authors.
The paper presents an econometric study of the two bank ratings assigned by Moody's Investors Service. According to Moody's methodology, foreign-currency long-term deposit ratings are assigned on the basis of Bank Financial Strength Ratings (BFSR), taking into account "external bank support factors" (joint-default analysis, JDA). Models for the (unobserved) external support are presented, and we find that models based solely on public information can reasonably well approximate the ratings. It appears that the observed rating degradation can be explained by growth of the banking system as a whole. Moody's has a special approach for banks in developing countries and Russia in particular. The models help reveal the factors that are important for external bank support.
The paper examines the structure, governance, and balance sheets of state-controlled banks in Russia, which accounted for over 55 percent of the total assets in the country's banking system in early 2012. The author offers a credible estimate of the size of the country's state banking sector by including banks that are indirectly owned by public organizations. Contrary to some predictions based on the theoretical literature on economic transition, he explains the relatively high profitability and efficiency of Russian state-controlled banks by pointing to their competitive position in such functions as acquisition and disposal of assets on behalf of the government. Also suggested in the paper is a different way of looking at market concentration in Russia (by consolidating the market shares of core state-controlled banks), which produces a picture of a more concentrated market than officially reported. Lastly, one of the author's interesting conclusions is that China provides a better benchmark than the formerly centrally planned economies of Central and Eastern Europe by which to assess the viability of state ownership of banks in Russia and to evaluate the country's banking sector.
The paper examines the principles for the supervision of financial conglomerates proposed by BCBS in the consultative document published in December 2011. Moreover, the article proposes a number of suggestions worked out by the authors within the HSE research team.