Bangkok--22 Feb--Moody's Investors
Significant number of bank deposit upgrades expected; initiative begins this week
Starting this week Moody's Investors Service will begin the rollout of a series of rating actions for all Moody's-rated banks in conjunction with the implementation of its joint default analysis (JDA) methodology for banks and its updated Bank Financial Strength Rating (BFSR) methodology. The implementation will cover more than 1,000 banks in over 90 countries.
Moody's expects to announce any rating actions resulting from the implementation on a weekly basis, with roughly 120 to 150 banks being assessed each week for the next seven weeks. The rollout will take place by region, with rating changes announced on Fridays after the market close in New York.
The JDA methodology for banks, which will be published this week after more than a year of market feedback and evaluation, incorporates what Moody's believes will be more transparent, consistent -- and in many cases, increased -- recognition of the likelihood of external support either from a parent bank, regional government, cooperative or mutual banking group; or Moody's opinion about the probability of systemic support.
"Overall there is likely to be a fairly significant number of upgrades of bank deposit ratings, with a few downgrades. Some bank debt ratings will also be upgraded, although to a lesser extent because in some countries subordinated bank debt obligations benefit less from systemic support than deposits," says David Fanger, Moody's Chief Credit Officer for Financial Institutions.
The updated Bank Financial Strength Rating (BFSR) methodology will lead to some changes to Moody's Bank Financial Strength Ratings, which measure stand-alone financial strength. "Those changes are likely to be mixed, with some upgrades and some downgrades," Fanger said.
The first announcement of rating actions, which will cover banks in Nordic countries, Eastern Europe, and the Benelux countries, is planned for Friday, February 23. Rating actions on banks in North America will be announced the following Friday, and banks in Latin America, France, Italy, Israel, and Iberia will be addressed the week after that.
The rating actions in the remaining regions will be announced weekly, with the last announcement slated for Wednesday, April 11th. A full schedule of regions to be reviewed, by country, is available on moodys.com.
ABOUT MOODY'S REVISED METHODOLOGY
Moody's first proposed the incorporation of joint-default analysis into its bank rating methodology in October 2005, with public updates and requests for comment in April, August, and November 2006.
"We have long recognized the potential for systemic support -- as well as other sources of external support -- in our bank ratings but we rated banks in different countries using a variety of approaches. In some cases we notched down from the government's own rating, while in others we notched up from the bank's stand-alone rating. With hindsight, it appears that we tended to underestimate the benefit of systemic support," Fanger explains.
Systemic support can take many forms, including liquidity support, accounting and regulatory forbearance, deposit guarantees, a rescue merger with another bank, a government-sponsored recapitalization, an exchange of problem loans for government bonds, or an asset purchase and deposit assumption by a government instrumentality.
BFSR RATING CHANGES
As an element of this initiative, Moody's has revised its Bank Financial Strength Rating (BFSR) methodology. Proposed changes were published for comment in September 2006, with a revised request for comment in December.
The revised BFSR methodology is intended to clarify Moody's ratings process and includes, for the first time, a "rating scorecard" that can be used to estimate a BFSR for most banks based on key financial and qualitative indicators.
"The scorecard will be used as a tool by Moody's analysts and rating
committees in the ratings process but, as with any tool, the scorecard may not fit all circumstances. Moody's will continue to perform a thorough and detailed analysis of every bank it rates, and will not be bound by the scorecard estimate where that estimate fails to account for all the nuances of bank financial strength," says Fanger.
The final version of the updated BFSR methodology incorporates significant market feedback on the components of the scorecard, including factor weightings, the measurement of geographic and earnings diversification,and the evaluation of liquidity risk management and market risk appetite.
Further information on BFSR and JDA methodology, including the most current methodologies, FAQs, the schedule of expected ratings announcements, and the list of rating changes once announced, is available on Moody's JDA/BFSR for Banks homepage at www.moodys.com/JDABanks .
Inquiries can be directed to David Fanger, or to any of the following regional analysts at Moody's:
Americas
Gregory Bauer, Managing Director +1-212-553-1498
Rosemarie Conforte (N. America), Senior Vice President, Regional Credit
Officer +1- 212-553-0828
Jeanne Del Casino (Lat America), Vice President, Regional Credit Officer
+ 1-212-553-4078
Europe, Middle East and Africa
Antonio Carballo, Managing Director + 4420-7772-8660
Adel Satel, Managing Director + 4420-7772-5311
Maria Cabanyes, Senior Vice President, Regional Credit Officer
+3491-702-6603
Lynn Exton, Senior Vice President, Regional Credit Officer +
4420-7772-5388
Asia, Ex-Japan
Jerry Chien, Managing Director + 852-2916-1106
Deborah Schuler, Senior Vice President, Regional Credit Officer
+65-6398-8336
Japan
Yasunobu Doi, Vice President, Senior Credit Officer + 813-5408-4053
Mutsuo Suzuki, Senior Vice President, Regional Credit Officer +
813-5408-4051
NOTE TO JOURNALISTS ONLY: For more information, please contact New York
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New York
David Fanger
Chief Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Laura Levenstein
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653