Title
A multivariate analysis of the determinants of Moody's bank financial strength ratings
Document Type
Journal article
Source Publication
Journal of International Financial Markets, Institutions and Money
Publication Date
8-1-1999
Volume
9
Issue
3
First Page
267
Last Page
283
Publisher
Elsevier BV
Keywords
Bank financial strength ratings, Logistic regression model
Abstract
In 1995 Moody's Investors Services inaugurated a new rating service, bank financial strength ratings (BFSRs), that assesses the safety and soundness of banks in over 50 countries. Our study sets out to do some preliminary investigations of this new type of credit rating. We develop logistic regression models to help explain or predict BFSRs. Using bank-specific accounting and financial data we are able to correctly classify or predict BFSRs. These fundamental variables cover the dimensions of risk, loan provision ratios, and profitability. Of the three, loan provisions is the most important factor, followed by risk, and then profitability. Country risk ratings do not appear to be significant explanators of BFSRs. We also find that traditional debt ratings accurately classify BFSRs and this raises the question of whether BFSRs add incremental information. The paper also highlights future directions for our research. One such area is to examine how well BFSRs predict banking crises such as the credit problems currently affecting Asia and Latin America.
DOI
10.1016/S1042-4431(99)00011-6
Print ISSN
10424431
E-ISSN
18730612
Publisher Statement
Copyright © 1999 Elsevier Science B.V.
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Poon, W. P. H., Firth, M., & Fung, H.-G. (1999). A multivariate analysis of the determinants of moody's bank financial strength ratings. Journal of International Financial Markets, Institutions and Money, 9(3), 267-283. doi: 10.1016/S1042-4431(99)00011-6
