22
COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

Embed Size (px)

Citation preview

Page 1: COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

COUNTRY RISK ANALYSIS

Overseas Economic Research Institute

The Export-Import Bank of Korea

Page 2: COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

PRESENTATION CONTENTS

Trend

Overview

Approaches

Area Study

Page 3: COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

Country Risk Analysis

Trend • 1960~1970: Emergency Outbreaks (War, Coup d’Etat) => Raised concern on “Political risk”

• 1980~1990: Debt Default in Developing Countries => International Issue on “Country risk”

• 2000~ : Increased Transactions with Globalization => Risk Management of Emerging Market

Page 4: COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

Country Risk Analysis

• Economic Crises in Emerging Markets Trend

Financial Crisis External Debt Crisis

Banking 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)

Argentina (1983, 2001)Indonesia (1998)Mexico (1999)Pakistan (1983)Russia (1998)Venezuela (1985)

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)

Page 5: COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

Country Risk Analysis

• Major Economic Crises by Region Trend

Latin America South-East Asia Eastern Europe

External Debt Crisis

Budget DeficitFDI over-Inflow

Currency System

Financial Crisis

Current Account Deficit

Structural Weakness

Liquidity Crisis

Transition Economy

Page 6: COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

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.

• 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

Page 7: COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

Country Risk Analysis

• Comparison of Major CRR Agencies

Overview

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

Page 8: COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

Country Risk Analysis

• Comparison of Its Utilization by Agency

• Focus to Measure (Standard & Poor’s)

“ It measures the capacity and willingness of the government to pay its debt in due conditions. ”

Overview

ECA OECD S&P/Moody’s

• Credit Policy• Exposure Management• Risk Weighted Rate

• MPR • Financing Capitals

Page 9: COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

Country Risk Analysis

• 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

Overview

Page 10: COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

Country Risk Analysis

• Rating Factors by Agency

Overview

K Exim OECD

• Economic Indicators• External Transactions • Payment Capacity

• Payment Experience• Financial Indicators• Economic Indicators• Transition Indicators

• Economic Situation • Political & Social Situation• International Creditworthiness

• Financial Situation • Government Policy• Turmoil Risk• Others

Page 11: COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

Country Risk Analysis

Rationale

• Basic Information of Decision-Making for External Transactions based on the Country Risk Analysis

=> Credit Policy Attitude toward Markets

• Risk Management of Foreign Assets in light of Measure the Payment Capacity of a Borrower

=> Management of Risk weighted Assets

Approaches

Page 12: COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

Country Risk Analysis

CRAM (Country Risk Assessment Model)

• Mixture of Quantitative and Qualitative

• Operated by Qualitative Methods (1977-1997)• Introduction of Quantitative Methods (1998)• Model Enhancement (2002, 2005)• Developing Model Methodology…

Approaches

Page 13: COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

Country Risk Analysis

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

Approaches

Page 14: COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

Country Risk Analysis

Approaches (1) Quantitative Factors

• 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

Page 15: COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

Country Risk Analysis

Approaches (2) Qualitative Factors

• Economic Situation : Structural Vulnerability, Growth Potentials, Policy Performance

• Political & Social Situation : Political & Social Stability, Turmoil/Events, International Relation

• International Creditworthiness : Willingness to Pay External Debt, Appraisal from

International Markets…

Page 16: COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

Country Risk Analysis

• Incorporated Overall Score

• Overall Score = (QT Score + QL Score)/2• Individual Factors: Converted Weights into Score• QT Score Discount for the Transition Economy

• Matched Ratings

Approaches

Overall Score K Exim Rating OECD Rating

(90) ≥ 80 (80) ≥ 70 (70) ≥ 60 (60) ≥ 50 (50) ≥ 45 (45) ≥ 40 (40) ≥ 35

(35) ≥ 30 (10) < 30

A B1 B2 C1 C2 C3 D1 D2 E

0/1 2 3 4 5 5 6 6 7

Page 17: COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

Country Risk Analysis

• Procedure for Country Risk Classification

• Country Risk Evaluating Meeting

• Country Risk Analyzing Debate • Country Risk Evaluating Committee

• Decision of Country Risk Rating

• Major Countries : Debate, Committee • General Countries : Debate

Approaches

Page 18: COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

Country Risk Analysis

• Notification of Country Risk Rating

• Internal Notification

• Customer : Credit Department…• Service : Country Risk Ratings and Related Reports

• External Notice

• Service : Released Ratings since April 2007 www.koreaexim.go.kr

Approaches

Page 19: COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

Country Risk Analysis

Area Study

Sources and Materials Referred Information

• Country Risk Agencies (S&P, Moody’s, ICRG)

• International Organizations (IMF, World Bank, OECD)

• Area Study Institutions (EIU, IIF, Economist, KIEP, KOTRA)

• Major Newspapers (FT, WSJ, NYT, WP)

• Internet and Broadcasting (Bloomberg, CNN, BBC)

• Overseas Representatives

• OECD CRE Meeting Outcome

• ECA Developments

• Local/Regional Authorities

• Field Survey

Page 20: COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

Country Risk Analysis

Area Study

K Exim OER(1982)

OEIS(1997)

Special Report(2000)

Intervals 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.

Page 21: COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

Country Risk Analysis

• Country Report

• Objective Broad Understanding on an Available Country to Do Business in perspective of Economic Cooperation

• Contents Overall Information and Economic Situation, Industry, Investment and Feasible Program for the Country

• Background Country Risk Evaluating and Related Reports

Area Study

Page 22: COUNTRY RISK ANALYSIS Overseas Economic Research Institute The Export-Import Bank of Korea

Thank You Very Much !

Yang-Hyeon JOCountry Risk Economist