DFIs' Creditworthiness
in the Context of Their Roles
Ping Chew
Managing Director
Corporate & Government Ratings
Standard & Poor’s
Dec 19, 2007
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Agenda
 S&P’s Criteria on Rating DFIs
 DFIs’ Financial Profile Analysis
 Govt Influence in DFIs: Positive or Negative?
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National Development Banks and Export Credit Agencies
 NDBs and ECAs (DFIs) are generally policy-based institutions – perform functions or
achieve results that purely commercial FIs are/were unwilling to do or unable to
achieve, including:
 Financing exports, financing infrastructure, supporting growth and development of less-developed
region, developing domestic capital markets, backing “national champions”, supporting SMEs,
emergency funding during financial crises or natural disasters, etc.
 DFIs are not profit-maximizing. Can be profitable but less so than domestic
commercial counterparts:
 Lend at relatively low margins over cost of funds
 Lend where commercial counterparts eschew
 Avoid some types of risk to boost profits: passive ALM.
 Higher operating costs
 Some has more risk-weighted capital
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3.
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GREs Defined (S&P)
 Government Related Entities (GREs) are enterprises potentially
affected by extraordinary government intervention in an economic or
financial stress scenario.
 Intervention is usually in the form of support, but may redirect GRE
resources to the government and weaken GRE credit quality.
 Most GREs are in the public sector and controlled by a government
through majority ownership.
 Some GREs have little or no government ownership and are GREs
because of their monopoly positions or their roles as systemically
important financial institutions, as providers of other crucial goods
and services, or as critical employers.
 More than 400 GREs (30 Dev Banks and ECAs) rated by S&P globally
in all sectors and regions
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The 2 categories of GREs
Public-policy-based Institutions Commercial Entities
Role
Play a central role in meeting
political and economic
objectives
Play a lesser or no public policy
role, capable of functioning in a
commercial environment
Govt influence
and involvement
Govt influence tends to be
policy and/or through law
Govt interests and influence affect
business risks faced by entity
Credit rating
notching
Final credit rating closely
Final Credit rating more closely
linked to the government
aligned with their stand-alone credit
= > up to 6 notches below the
quality
government’s rating
= > up to 6 notches above the GRE’s
stand-alone rating
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GRE’s Rating Criteria
GRE’s Final Credit Rating =
Standalone Rating (includes all ongoing government influence)
• Reflects the GRE’s performance and prospects, including on-going
government support received in the normal course of business
• But excludes credit for any extraordinary government assistance that
might be expected in the event of a crisis.
• Is determined in accordance with S&P’s criteria for the specific type of
entity being analyzed.
• Focuses on the status-quo environment, including potential changes in
that environment (forward-looking)
• Can be adversely impacted by price ceilings, risky investment project
mandates, and directives to provide loss-generating goods, etc.
+
Notching (the likelihood of extraordinary government intervention)
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Notching For Extraordinary Government Support
 GRE partly or fully owned by the government and is likely to remain so in the future?
 GRE benefits from a form of guarantee from the government?
 GRE has significant economic/political importance and public policy role?
 GRE provides essential good/service that others cannot provide as effectively or
efficiently?
 GRE tightly supervised by the government?
 GRE legally entitled to financial support from govt based on status/ nature of
activities?
 A default of the GRE is likely to impact market access for the govt and other GREs?
 Govt has track record and/or policy to provide extraordinary support to GREs in
financial distress?
 Govt has mechanisms for diagnosing/responding to GREs financial distress in a
timely manner?
 Govt has the financial ability to support the GRE in a timely manner?
 Govt has track record of assuming liabilities of GREs or recapitalizing them in case
of privatization?
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Rating the GRE the Same as the Government
 The rating of a GRE is generally equated with that of the ownergovernment when the entity:
 has a constitutionally or legally mandated place in the
machinery of government that is difficult to change; and/or
 engages in activities that cannot readily be undertaken on a
commercial basis.
 Equalization does not result solely from the entity’s policy role,
but rather from its place in the processes of government.
 In some cases, the potential for adverse government
intervention limits the ratings of GREs with a strong standalone rating at the government level
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Govt Bailouts
• Institution-specific stress
– When govt itself is not under unusual stress increases the probability that support will be
forthcoming
• General economic/financial stress
– Probability of govt support may diminish. Indeed, govt may take resources from DFIs/GREs.
 Probability of extraordinary support always reflected in the rating at any time,
even if strong standalone
 However, evidence of government’s willingness to support often clearer for
weaker GREs
 More theoretical exercise for strong GREs: less supervision, no track record of
support, no public statement of support
 Often when GRE stand-alone situation deteriorates --> more evidence of
extraordinary government support --> slows down or breaks the downward
rating trend (=parachute)
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S&P’s Ratings On DFIs
NDBs
ECAs
BNDES (BB+/Positive)
Brazil (BB+)
HBOR (BBB/Stable)
Croatia (BBB/Stable)
RBD (BBB+/Stable)
Russia (BBB+/Stable)
CDB (A/Positive)
China (A/Positive)
DBJ (AA-/Negative)
Japan (AA/Stable)
DBK (BBB-/Stable)
Kazahkstan (BBB-/Stable)
DBP (BB-/Stable)
Philippines (BB-/Stable)
FJB (B/Stable)
Fiji (B/Stable)
KDB (A/Stable)
Korea (S/Stable)
BANCOLDEX (BB+/Stable)
Colombia (BB+/Stable)
Bancomext (BBB/Stable)
Mexico (BBB+/Stable)
Eksportfinans (AA+/Stable)
Norway (AAA/Stable)
India Exim (BBB-/Stable)
India (BBB-/Negative)
China EXIM (A//Positive)
China (A/Positive)
Sinosure (A/Positive)
China (A/Positive)
JBIC (AA/Stable)
Japan (AA/Stable)
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