Empirical Modeling of International Banks’ Credit Risk: Assessment and Comparison of Credit Ratings
The year 2019 saw the Asian Bankers Association (ABA) undertaking activities aimed at further enhancing the value of the Association to its members and the Asian banking sector as a whole. Conceptualized and implemented with the valuable guidance and support of ABA officers and member banks, the activities and projects of the Association in 2019 are summarized in this Year-in-Review report.
This paper aims at explaining the differences in valuation of banking firms in Russia through the impact of selected elements of corporate governance. We rely upon value-based management theory to test the hypothesis that expenses on corporate governance system create shareholder value. The price at which share stakes are acquired by strategic foreign investors is for us a criterion of market-proven value, so we use the standard valuation tool, i.e. price-to-book-value of equity (P/BV) multiple, as the dependent variable. The set of corporate governance parameters whose materiality for a would-be external investor we would like to test includes: the degree of concentration of ownership and control; maturity of corporate governing bodies; degree of Board independence; qualification of external auditors; stability of governing bodies (Management Board and Board of Directors); and availability of external credit ratings from the world’s leading rating agencies. We test our approach on a sample of acquisition deals and public offerings over the period 2004-2008 that we develop for the first time. Firstly, we find out which factors are statistically significant and relevant to a bank’s selling price. Secondly, a least squares multiple linear regression model is devised to check how each individual variable impacts the dependent variable. We discover that external investors attach value to high concentration of ownership, external credit rating coverage, stability of the Board of Directors, and involvement of well-established external auditors. Investors of a strategic nature tend to pay a higher acquisition premium. Independence of the Board of Directors might be perceived by external strategic investors as a disadvantage and might destroy shareholder value.
This article presents an engineering approach to estimating market resiliency based on analysis of the dynamics of a liquidity index. The method provides formal criteria for defining a “liquidity shock” on the market and can be used to obtain resiliency-related statistics for further research and estimation of this liquidity aspect. The developed algorithm uses the results of a spline approximation for observational data and allows a theoretical interpretation of the results. The method was applied to real data resulting in estimation of market resiliency for the given period.
The paper presents a review of stochastic framework for term structure modeling and shows comparative advantages of commonly used techniques. The main application of the research is coherent modeling of credit and interest rate risk for Euro zone issuers.
The article gives an overview of influence of stock market discrimination on market value of companies in China. There are two types of shares on Chinese stock market: class A shares, which are available for domestic investors, and class B shares, which are available for foreign investors. Such market structure is not a unique Chinese market's feature. It is also used in such countries as Finland, Singapore, Switzerland, Thailand, etc. What differs Chinese market from markets with similar structure is the fact that class B shares are traded with substantial discount to class A shares. Such a situation is explained by such factors informational asymmetry between domestic and foreign investors; different liquidity of different classes of shares; diversification effect, connected with investment in Chinese stock market; size of companies; ratio of amounts of shares of different classes; stock exchange where company's shares are traded.
Using data on foreign borrowing, I identify Russian banks that were affected by the sudden stop of external financing caused by the Lehman Brothers’ collapse. Applying the difference-in-difference method, I compare these «affected» banks to «unaffected» ones and find that the Russian Central Bank’s (CBR) anti-crisis financial assistance primarily went to the former group. Tracing the impact of the CBR’s liquidity infusions on banks’ portfolio allocation decisions, I find that banks used CBR funds not only to pay out foreign debt, but also to accumulate cash deposits in non-resident banks. I also find that affected banks increased their holdings of market securities significantly more than unaffected ones, which suggests that the CBR’s bailout policies impacted their risk-taking strategies. While there was no significant difference in corporate lending growth between the two groups after the sudden stop, lending to borrowers with weaker banking relationships (individuals and entrepreneurs) decreased more among affected banks.
The Working Paper examines the peculiarities of the Russian model of corporate governance and control in the banking sector. The study relies upon theoretical as well as applied research of corporate governance in Russian commercial banks featuring different forms of ownership. We focus on real interests of all stakeholders, namely bank and stock market regulators, bank owners, investors, top managers and other insiders. The Anglo-American concept of corporate governance, based on agency theory and implying outside investors’ control over banks through stock market, is found to bear limited relevance. We suggest some ways of overcoming the gap between formal institutions of governance and the real life.
This empirical paper adds to competition and industrial organization literature by exploring the interplay between industry structure and competitiveness on local, rather than nation-wide, markets. We use micro-level statistical data for banks in two Russian regions (Bashkortostan and Tatarstan) to estimate Herfindahl-Hirschman index, Lerner index, and Panzar-Rosse model. We estimate Panzar-Rosse model in two ways: via the widely used price-equation that accounts for scale effects and then via a revenue-equation that disregards scale effects as suggested by Bikker, Shaffer and Spierdijk (2009). We find both regional markets to be ruled by monopolistic competition, although estimation by revenue-equation does not reject monopoly hypothesis for Tatarstan. Existence of sizeable locally-owned and operated institutions does not necessarily lead to higher competitiveness of the given regional market. Non-structural methods of estimation suggest that bank competition in Bashkortostan is stronger than in Tatarstan.
Into the Red explores the emergence of a credit card market in post-Soviet Russia during the formative period from 1988 to 2007. In her analysis, Alya Guseva locates the dynamics of market building in the social structure, specifically the creative use of social networks. Until now, network scholars have overlooked the role that networks play in facilitating exchange in mass markets because they have exclusively focused on firm-to-firm or person-to-person ties. Into the Reddemonstrates how networks that combine individuals and organizations help to build markets for mass consumption. The book is situated on the cutting edge of emerging interdisciplinary research, linking multiple layers of analysis with institutional evolution. Using an intricate framework, Guseva chronicles both the creation of a credit card market and the making of a mass consumer. These processes are placed in the context of the ongoing restructuring in postcommunist Russia and the expansion of Western markets and ideologies through the rest of the world.