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Eurasian Economic Review

, Volume 6, Issue 3, pp 341–363 | Cite as

Modelling banks’ credit ratings of international agencies

  • Alexander M. Karminsky
  • Ella Khromova
Original Paper

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 

JEL classification

G21 G33 

Notes

Acknowledgment

Authors are grateful to acknowledge the help with data collection from Alexander Kostrov as well as the programming data correction from Amal Imangulov and Mikhail Rodichkin.

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Copyright information

© Eurasia Business and Economics Society 2016

Authors and Affiliations

  1. 1.Academic Department of FinanceNational Research University Higher School of EconomicsMoscowRussia
  2. 2.National Research University Higher School of EconomicsMoscowRussia

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