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Global Bank Rating Methodology

 


 
Moody’s bank rating methodology considers two important features of a bank’s credit risk: (i) its intrinsic, or stand-alone strength, and (2) the likelihood it will receive financial support from outside entities to avoid default.
  
This page is intended to help you learn more about each step in the rating process. Use the sections and links below to navigate to a topic of interest.
 
STEP 1: Determine the Bank Financial Strength Rating (BFSR)
Moody’s BFSR reflects a bank’s intrinsic financial strength relative to all other rated banks globally. These ratings are assigned from a thirteen-point scale ranging from A to E (including ‘+’ and ‘-‘ qualifiers).
  • Read the BFSR page to learn more.
  • Use the BFSR Scorecard to generate an implied BFSR from user-defined inputs.
  • Learn about the calibration of BFSR in times of stress when capital buffers and earnings retention become rating factors of increasing relative importance.
STEP 2: Translate BFSR to a Baseline Credit Assessment (BCA)
Once a BFSR is determined, it’s translated to a BCA from the aaa to ca scale (see Table 1 below). Where the BCA maps to more than one BFSR scale rating, the rating committee determines which BCA best suits the credit profile of the issuer based on the evidence presented by the analyst(s).
 
Table 1: BFSR to BCA Mapping
BFSR BCA   BFSR BCA
A aaa   C- baa1 - baa2
A- aa1   D+ baa3 - ba1
B+ aa2   D ba2
B aa3    D- ba3
B- a1   E+ b1 - b3
C+ a2   E+ caa1 - ca
C a3      
 
 
STEP 3: Considers Support & Other Factors
(A) Incorporate Joint Default Analysis (JDA)

To determine a bank’s final credit-risk rating, Moody’s considers the possibility and probability that a bank will receive support from either a parent, association, country or other sources in order to prevent a default. This evaluation of potential support incorporates Joint Default Analysis (JDA) to adjust the BCA to a deposit ceiling—the Local Currency (LC) Deposit Rating.
 

 
(B) Consider the foreign currency ceilings

 
After the LC Deposit Rating is assigned, Moody’s considers the foreign currency ceiling applied to the nation in which the bank operates, to account for foreign-currency risk. The resulting rating is called the Foreign Currency (FC) Deposit Rating—also called the Issuer (Bank) Rating.
 
For banks domiciled in countries with a Aaa Country Ceiling for Foreign Currency Bank Deposits, local and foreign currency deposit ratings are identical. Banks with local currency deposit ratings above the Country Ceiling for Foreign Currency Bank Deposits will have their foreign currency deposit ratings capped by the ceiling.
 
 
(C) Determine Ratings of a Bank’s Junior (hybrid) Securities
 

 

With the roll-out of our revised Bank Hybrid Rating Methodology in November 2009, the starting point for subordinated debt and hybrid instrument ratings is the adjusted Baseline Credit Assessment, which is determined by adding parental and/or cooperative support to the BCA.
 
Subordinated debt and hybrid instrument ratings are typically assigned ratings one or more notches below the adjusted BCA to reflect higher expected loss rates due to instrument specific features.
  
 
Read Moody’s Guidelines for Rating Bank Hybrid Securities and Subordinated Debt to learn more.
Translations: Russian / Italian / Korean / German
 
 
(D) Mapping National Scale Ratings
 
Moody’s National Scale Ratings (NSRs) are relative measures of creditworthiness within a narrowly defined peer group rather than the full universe of Moody’s rated entities—distinguishing it from the Moody’s Global Scale Ratings (GSRs).
 
In contrast to GSRs, which are designed to predict the probability of default on a comparable basis across industries, geographies, markets, and types of obligation, NSRs (using modified global symbol sets) are meant to enhance credit differentiation among issuers in developing countries that are characterized by a “bunching” of issuers within a narrow band of credit quality. Given this bunching, the added information from the use of the full rating scale by NSRs is useful to domestic market investors. The NSR peer group is typically limited to those issuers active within a single domestic capital market.
 
 
Read the Methodology: Mapping Moody’s National Scale Ratings to Global Scale Ratings.
Translations: French / German
  


 
Download the Global Bank Rating Methodology Brochure to learn more.
Translations: French / German / Italian / Russian / Spanish
 

 

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