Bank Credit Risk Rating Process: Is There a Difference Between Developed and Developing Country Banks?

Abstract

The purpose of this article is to study empirically the bank credit risk rating (BCRR) process across country groups (developed countries ‘DdC’ against developing countries ‘DgC’) after the 2012 revision of their methodologies as a response to the global and European crisis. We use the S&P’s ratings of 231 banks from 36 EMENA countries which of 18 are developed. We made this comparison based on the CAMELS model with a proposed ‘S’ to BCRR. We perform ‘ordered logit’ regression for the rating classes and complete our analysis by ‘linear multiple’ regression for the rating grades. The results show that the entire rating process, including the weight of components, the important factors and the relevant variables, of DdC banks differs partly from this of DgC. The intrinsic credit quality component of the rating has more weight for the allocation of rating grades of DdC banks and the environment supports component has more weight for those of DgC. Some important factors represented by relevant variables are specific to each bank group and others are the same for both groups, but with a difference in the influence on the rating assigned. Sovereign rating has become more relevant to define bank groups than the country level of development.