Credit risk

Top 6 Credit Risk Factors When Evaluating Banks Amid Market Volatility

Bank solvency over the past two years has been significantly affected by the effects of the coronavirus pandemic, oil price shocks, political unrest and increased market volatility. The magnitude varies by industry, geography and rating level.

Emerging market banks are often more exposed than their developed market counterparts due to lower investor appetite and higher funding costs for systems reliant on external funding. According to S&P Global Ratings, developed economies generally have the ability to exert greater and more effective support and stimulus, given their wealth and access to finance.[1]

Credit report score cards

S&P Global Market Intelligence’s Credit Scorecards provide the framework that provides access to credit risk benchmarks and attribute-based scoring guidelines in an intuitive, easy-to-use structure designed to score banks rated and unrated.

Below you will find the 6 main considerations when analyzing the impact of market volatility using the Bank’s methodology and dashboard.

  1. BICRA Economic and Industrial Risk

Banking Sector Country Risk Assessments (BICRA) cover the entire financial system of a country taking into account the relationship of the banking sector with the entire financial system.

  1. Bank specific risks

Credit analysts should use forecasts to capture the uncertainty and shock caused by COVID-19 on financial ratios, based on a sound financial forecasting model.

  1. Business post

Business position measures the strength of a bank’s business operations. It is the combination of specific features of the bank’s business operations that add to or detract from its operating environment.

  1. Capital and profits

Capital and earnings measure a bank’s ability to absorb losses. The near-term impact of the COVID-19-related easing of various banking regulations (e.g. capital buffers and forbearance) is mitigating the procyclical credit crunch, giving banks more flexibility in prudential treatment loans backed by public support measures.

  1. Risk position

Risk position measures the adequacy of a bank’s risk framework and the strength of its risk management. The assessment is designed to capture the specific characteristics of a particular bank and enhance the conclusions of standard capital and earnings analysis. The analysis of risk position in the S&P Global Market Intelligence Banks Scorecard is largely based on assessing the quality of banks’ assets.

  1. Funding and liquidity

The way a bank funds its business and the direct link between a stable deposit base and confidence affect its ability to maintain business volumes and meet its obligations in adverse circumstances.

With ever-changing credit markets, how do you effectively manage risk?

Request a demo to learn how credit scorecards can help you identify and manage potential default risks from private, publicly traded, rated and unrated businesses across a multitude of industries.



[1] Coronavirus impact: key takeaways from our article, S&P Global Ratings. Date: April 03, 2020