Transcript COUNTRY RISK ANALYSIS

COUNTRY RISK ANALYSIS
Overseas Economic Research Institute
The Export-Import Bank of Korea
PRESENTATION CONTENTS
Trend
Overview
Approaches
Area Study
Country Risk Analysis
Trend
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1960~1970: Emergency Outbreaks (War, Coup d’Etat)
=> Raised concern on “Political risk”
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1980~1990: Debt Default in Developing Countries
=> International Issue on “Country risk”
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2000~
: Increased Transactions with Globalization
=> Risk Management of Emerging Market
Country Risk Analysis
Trend
• Economic Crises in Emerging Markets
Financial Crisis
Argentina (1982, 2001)
Brazil (1982, 1998-99)
Ecuador (1986, 1999)
Egypt (1981, 1989-91)
India (1991, 1993)
Indonesia (1986, 1998)
Mexico (1982, 1994-95)
Nigeria (1987, 1999)
Philippine (1983, 1997)
Russia (1998)
Turkey (1994)
Venezuela (1984, 1996)
External Debt Crisis
Argentina (1983, 2001)
Indonesia (1998)
Mexico (1999)
Pakistan (1983)
Russia (1998)
Venezuela (1985)
Banking Crisis
Argentina (1989, 1995)
Brazil (1987, 1990, 1994)
Hungary (1991)
India (1984, 1999)
Indonesia (1997-98)
Korea (1981, 1998)
Mexico (1989, 1995)
Nigeria (1989, 1996)
Turkey (1982, 1999)
Venezuela (1994, 1999)
Country Risk Analysis
Trend
• Major Economic Crises by Region
Latin America
South-East Asia
Eastern Europe
External Debt
Crisis
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Financial
Crisis
Liquidity
Crisis
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Current Account Deficit
Transition
Economy
Budget Deficit
FDI over-Inflow
Currency System
Structural Weakness
Country Risk Analysis
Overview
• Definition of Country Risk
“Degree of Default Risk of the Country”
It covers factors to influence the default risk of the
country resulting from economic deterioration, political
events, currency depreciation and so on.
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Major Elements of Country Risk (OECD)
- General Moratorium
- Delay Transfer of Funds
- Fluctuations in Exchange Rates
- Measure or Decision to Prevent Payment
- Force Majeure
Country Risk Analysis
Overview
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Comparison of Major CRR Agencies
K Exim
OECD
S&P
Moody’s
EIU
Premise
Seoul
Paris
NY
NY
London
Duration
1977
1998
1941
1949
1997
Number
167
145
104
109
100
Intervals
F
Q
F
F
Q
Category
9
8
22
22
12
Country Risk Analysis
Overview
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Comparison of Its Utilization by Agency
ECA
• Credit Policy
• Exposure Management
• Risk Weighted Rate
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OECD
• MPR
S&P/Moody’s
• Financing Capitals
Focus to Measure (Standard & Poor’s)
“ It measures the capacity and willingness of the government to
pay its debt in due conditions. ”
Country Risk Analysis
Overview
• Country Risk Rating Systems
- Fully Qualitative System
Merits : Available Sufficient Report
- Structured Qualitative System
Merits : Easy in Comparing between Countries
- Check List System
Merits : Clear in Evaluating Rating
- Statistical System
Merits : Efficiency and Forecasting
Country Risk Analysis
Overview
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Rating Factors by Agency
K Exim
OECD
• Economic Indicators
• External Transactions
• Payment Capacity
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Payment Experience
Financial Indicators
Economic Indicators
Transition Indicators
• Economic Situation
• Political & Social Situation
• International Creditworthiness
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Financial Situation
Government Policy
Turmoil Risk
Others
Country Risk Analysis
Approaches
Rationale
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Basic Information of Decision-Making for External
Transactions based on the Country Risk Analysis
=> Credit Policy Attitude toward Markets
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Risk Management of Foreign Assets in light of
Measure the Payment Capacity of a Borrower
=> Management of Risk weighted Assets
Country Risk Analysis
Approaches
CRAM (Country Risk Assessment Model)
• Mixture of Quantitative and Qualitative
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Operated by Qualitative Methods (1977-1997)
Introduction of Quantitative Methods (1998)
Model Enhancement (2002, 2005)
Developing Model Methodology…
Country Risk Analysis
Approaches
CRAM (Country Risk Assessment Model)
• Intervals: Regularly and Frequently
• Annual Country Risk Rating Plan
• Regularly: Quarterly Basis
• Requested Country from Credit Departments
• Deserved Country to be Evaluated
• Others
Country Risk Analysis
Approaches
(1) Quantitative Factors
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Nominal GDP
Per Capita GDP
Real GDP Growth Rate
Inflation
Budget Balance to GDP
Total Domestic Investment to GDP
Current Account Balance to GDP
Foreign Reserves to Average Monthly Imports
Total Exports Increasing Rate
Total Exports to GDP
Total External Debt Stocks to GDP
Total External Debt Stocks to Total Exports
Debt Service Ratio
Short-term Debt to Foreign Reserves
Country Risk Analysis
Approaches
(2) Qualitative Factors
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Economic Situation :
Structural Vulnerability, Growth Potentials,
Policy Performance
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Political & Social Situation :
Political & Social Stability, Turmoil/Events,
International Relation
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International Creditworthiness :
Willingness to Pay External Debt, Appraisal from International
Markets…
Country Risk Analysis
Approaches
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Incorporated Overall Score
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Overall Score = (QT Score + QL Score)/2
Individual Factors: Converted Weights into Score
QT Score Discount for the Transition Economy
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Matched Ratings
Overall Score
(90) ≥ 80
(80) ≥ 70
(70) ≥ 60
(60) ≥ 50
(50) ≥ 45
(45) ≥ 40
(40) ≥ 35
(35) ≥ 30
(10) ＜ 30
K Exim Rating
OECD Rating
A
B1
B2
C1
C2
C3
D1
D2
E
0/1
2
3
4
5
5
6
6
7
Country Risk Analysis
Approaches
• Procedure for Country Risk Classification
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Country Risk Evaluating Meeting
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Country Risk Analyzing Debate
Country Risk Evaluating Committee
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Decision of Country Risk Rating
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Major Countries : Debate, Committee
General Countries : Debate
Country Risk Analysis
Approaches
• Notification of Country Risk Rating
• Internal Notification
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Customer : Credit Department…
Service : Country Risk Ratings and Related Reports
• External Notice
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Service : Released Ratings since April 2007
www.koreaexim.go.kr
Country Risk Analysis
Area Study
Sources and Materials
Referred Information
• Country Risk Agencies
(S&P, Moody’s, ICRG)
• Overseas Representatives
• International Organizations
(IMF, World Bank, OECD)
• OECD CRE Meeting Outcome
• Area Study Institutions
(EIU, IIF, Economist, KIEP, KOTRA)
• ECA Developments
• Major Newspapers
(FT, WSJ, NYT, WP)
• Local/Regional Authorities
• Internet and Broadcasting
(Bloomberg, CNN, BBC)
• Field Survey
Country Risk Analysis
Area Study
Intervals
K Exim OER
(1982)
OEIS
(1997)
Special Report
(2000)
Monthly
(Book)
Frequently
(Internet)
Frequently
(Book)
Outputs
• Focus
• Regional Info.
• ECA…
• Country Paper
• FDI System
• Country Report
• Issue Paper
Contents
• Current Issue
• Events/News
• Developments
• Main Indicators
• Macro Eco.
• Investment Info.
• Country Info.
• Industry Info.
Country Risk Analysis
Area Study
• Country Report
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Objective
Broad Understanding on an Available Country to Do
Business in perspective of Economic Cooperation
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Contents
Overall Information and Economic Situation, Industry,
Investment and Feasible Program for the Country
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Background
Country Risk Evaluating and Related Reports
Thank You Very Much !
Yang-Hyeon JO
Country Risk Economist