Moody's Corporation · NYSE:MCO
Moody's — East Africa Series (March 2021)
22 slides from Moody's's conference presentation, March 2021
Slide 1: East Africa Series: Corporate Credit Risk Scoring
East Africa Series: Corporate Credit Risk Scoring March, 2021
Slide 2: Corporate Credit Scoring
Corporate Credit Scoring ANDREW KIOI NJERU KC B G R O U P
Slide 3: Obligor Counterparty ratings, Facility Ratings, SME scorecards
Obligor Counterparty ratings Corporate and Wholesale Facility Ratings Scoring SME scorecards
Slide 4: Corporate Scorecards
Corporate Corporate Scorecards and Wholesale Scoring SME scorecards
Slide 5: Types of Commercial/Wholesale Credit scorecards
Types of Commercial/Wholesale Credit scorecards Current Practice Corporate Application of scorecards and Common Challenges Wholesale Scoring The PD mapping, data scarcity Covid19 Implications The Future – Data analytics, ML
Slide 6: Basel Requirements
Basel Requirements Corporate IRB Approach. Ratings and Wholesale Scoring Regulatory Collateral
Slide 7: Typical Wholesale Corporate Scorecard
Financials Sector Typical Wholesale – Corporate Management Scorecard Banking Activity & CRB Company
Slide 8: Corporate Scoring - Our Experience
Corporate Scoring- Our Experience o Sector strategy policy to drive the sector ratings o Credit Analyst has a final role o SME models. More on sales , marketing o Altman’s Z score o KMV Moodys o Used for pricing o Risk Appetite
Slide 9: Wholesale Credit Scoring - Our Experience
Wholesale Credit Scoring- Our Experience Challenges Scanty data for SMES Delayed Audits SME? •No audits •Poor bookkeeping •Basic data missing - Turnover
Slide 10: Challenges
Delayed Audits Culture of regular ratings. Scanty data for SMEs Challenges •No audits •Poor bookkeeping •Basic data missing - Turnover Financial performance and Credit ratings are lagging indicators of risk Expertise – Smaller financial institutions
Slide 11: Policy
o Board Approval o Regular Review of the scorecard o Sector Analysis and Predefined sector ratings Policy o Regular review of sector based on Overall Bank Strategy o Independent Validation o Regular updates: Annually At least o Quarterly for high risk , Early Alert o Half yearly for the Top Exposure
Slide 12: Probability of Default
Probability of Default •Needed for Pricing Decisions •This is needed to map to each PD risk bucket or risk classification •Scarce default data for Wholesale and commercial Segments •Map to external ratings Agencies data. Publicly available
Slide 13: Covid19 Impact
Covid19 Impact What was the proportion of restructured loans in Kenya due to covid19 as at Dec 2020. Poll Question •A. 54% •B. 34% •C. 44% •D. 64%
Slide 14: Poll Answer
Covid19 Impact What was the proportion of restructured loans in Kenya due to covid19 as at Dec 2020. •A. 54% •B. 34% •C. 44% Poll Answer •D. 64% Source: https://www.businessdailyafrica.com/bd/markets/capital- markets/restructured-bank-loans-hit-54pc-in-december- 3271288
Slide 15: Engagement and Development
Engagement • Talk to credit analysts and Customer facing staff to understand the customers. Development • One scorecard versus many: System capabilities and implementation considerations • Comply with the credit underwriting standards.
Slide 16: Other Considerations
Other Considerations Development • Management of Overrides. • SMEs. Tend to have extremely positive ratios but less stable.
Slide 17: Other Considerations
Other Considerations Regulations •Differentiated pricing •ICAAP process •IFRS 9
Slide 18: Other Considerations
Other Considerations •Systems and Regulations automation is Important to manage model risks •Excel could do, but not stable.
Slide 19: Other Considerations
Other Considerations •The PWC presentation on IFRS9
Slide 20: Return on Solvency, Pricing, Cost of Risk
Return on Solvency Pricing Cost of Risk
Slide 21: Reporting
Reporting Management •Overdue Ratings reports •Migration matrices •Stability •Handling Old financials •Audits
Slide 22: Short- and Long-term Challenges
al Short- and Long-term Challenges COVID effects all industries, business sectors and locations ina disproportionate manner The effects of the government's COVID-related legislations are difficult to capture Financial performance is a lagging indicator of risk Forbearance program alignment is subopt