Rating and new business-banking approach

5Jul/09Off

Since 1 January-2008, starts the new rating RATING of Financial Institutions to the Companies. (Albeit partial or more shy and was beginning to be established by different entities)
Something that was reserved for large companies, now institutionalized for all.
I mean we all have at least an internal rating of each Bank and Fund, indicative of our "quality of risk" as a Company.
This qualification will allow us to or not, access to risk volumes and higher prices, or cheaper, as we are "more bad" or "rather good"

So far we came, some SMEs, offering the market, perhaps a face "tax" that was far from reality sometimes, and this, that ... until now could be recommended, now with this new perspective gives us "batteries" to refocus our strategy of "financial picture" to offer to the market (although for many that market, it could only be financial institutions)

The rating is the quality classification of risk presented by the company objective signs.
Basel II aims with this tool, prevent default losses of the Bank, while strengthening the financial system, providing tools maybe "scoring" much more widespread than hitherto were.
The steps provided more or less for Basel II, are:
• Standardize data
• Integration of diverse information
• Computerization of decisions
• Less time and more follow-up decision

That data will drive the Bank to qualify? ...
The classification seems to be subjective will of each entity, but the basic concepts should always be the same, and we watchers including:
Numbers and History
• History (with Banks, Creditors, etc.) and directly with the Entity
• turnover and profit, their evolution
• Volumes of Assets
• Borrowing short and long
• Caveats in the audit
• Solvency Ratios, Liquidity
• Equity
• Debt Structure
People
• Managers, and experience ..... Changes?
• Current Ownership Changes ............... ?....
• Family business or independent management
• Relational Capital
Product and Market
• Local, National, International
• Sector, Age, Productivity
• Degree of Internationalization
• Other ......
• Business Continuity Plan
• Environmental Risk
• CSR

The novelty then, is that depending on the quality of the credit portfolio, ie the rating of the borrower plus the kind of security provided, the most affected will be the necessary price receivable by the Bank for the financing used.
Above all requested information transparency
Risk is certainly good order, and to lack of information or misleading information = inability to decide about the quality of risk
Risk assessment is not completed, will affect companies borrowing capacity with the Bank at the price you could hire.
The variables most representative of a company, perhaps, FP (Equity) and solvency (FP / P)
Could it be too harsh and rigid system ?....
Looks like it could be, given that objectivity in the analysis could be both its advantage and its drawback, however, speed of analysis derived, could be a clear advance

RATING and BIS II, Schedule key:
Probability of default (Probability of Default) PD
Loss given default (Loss Given Default), LGD (severity)
Exhibition at the time of payment (Exposure At Default) EAD
Maturation period (Maturity) M
Expected Loss (Expected Losses) THE
Unexpected losses (Unexpected Losses) UL
RAROC (Risk Adjusted Return On Capital)
Regulatory capital (RC)

Example, let's try to reconcile a loan to a company of 1,000 euros, with total simuladdas
Margin 2%
PD = 4% = 1.000 € EAD LGD = 30% CR = 12%
EL = PD x LGD x EAD = 4% x 1,000 x 30% = 12 €, ....= 12/1000 = 1.2%
Differential adjusted = 2% - 1.2% = 0.8%
Adjusted RAROC = Differential / CR = 0.8% / 12% = 6%

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