Modelling banks’ credit ratings of international agencies

Alexandr Karminsky and Ella Khromova ()
Additional contact information
Ella Khromova: National Research University Higher School of Economics

Eurasian Economic Review, 2016, vol. 6, issue 3, No 1, 363 pages

Abstract: Abstract The aim of this paper is to construct a reliable banks’ rating model for the main international agencies based on public information for the potential practical use. The Bankscope database for the period from 1996 to 2011 was used in the research. The ordered probit models show that inclusion of macroeconomic variables as well as the regional dummies improve their explanatory power. Moreover, the significance of the time dummies allowed us to conclude that rating agencies do change their grade when an economy operates on the different business cycle stages. Furthermore, the conclusions of a conservative nature of Standard & Poor’s ratings and overvalued Moody’s grades compared to the rating agency Fitch were performed. The models were checked for the in-sample and out-of-sample fit including distributional comparisons across agencies. The obtained model was classified as practically useful, as it gave 31 % of precise results and up to 70 % forecasts with an error within one rating grade. Moreover, 62 % of rating classes of banks were predicted without an error and more than 95 % of rating classes’ forecasts had an error within one rating class.

Keywords: Bank; Credit rating; Ordered probit model; Rating agency (search for similar items in EconPapers)
JEL-codes: G21 G33 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s40822-016-0058-5 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:eurase:v:6:y:2016:i:3:d:10.1007_s40822-016-0058-5

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/40822

DOI: 10.1007/s40822-016-0058-5

Access Statistics for this article

Eurasian Economic Review is currently edited by Dorothea Schäfer

More articles in Eurasian Economic Review from Springer, Eurasia Business and Economics Society Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().