Embed Size (px)
Citation preview
Modeling structural default riskfor allocating deposits to money market
counterparties
Basis: Agusto Ratings, Fitch Weights, Edward Altman’s “Z-score” model parameters for financial institutions, Merton/ Moody’s KMV Model(time)
All ratings 2009 for 2010 placements
Demonstration of methodology
• each plot covers the period of prior to intervention announcements by the CBN:
• assigned z-scores were trended for the period to reflect firm and market changes
• these bear a simple rating system:
• Z < 1.8 = “default”, • 1.8< Z <3.0 “troubled credit”• ….> 3.0 “Okay”
Basis of allocation to counterparties…
Factor WC/TA RE/TA EBIT/TA MVE/TL G.Rev/ T.Assets Z-Score % Allocation Year End
Multiple 1.20 1.40 3.30 0.60 1.00
ACCESS 0.93 0.05 0.05 106.21 0.03 6.51 4.20% 31-Mar-08
AFRIBANK 0.45 0.02 0.04 64.68 0.04 3.96 2.55% 29-Feb-08
PLATINUM 1.06 0.08 0.07 24.64 0.05 1.65 1.06% 29-Feb-08
DIAMONDBNK 0.73 0.07 0.05 267.34 0.05 16.16 10.43% 31-Dec-08
FIDELITYBK 1.09 0.07 0.07 192.75 0.05 11.73 7.57% 31-Dec-08
FIRSTINLND 0.68 0.08 0.10 45.92 0.08 2.89 1.86% 29-Feb-08
FIRSTBANK 0.61 0.09 0.12 209.18 0.07 12.68 8.19% 02-Jun-08
FCMB 1.86 0.14 0.09 192.65 0.07 11.84 7.64% 30-Jun-08
GUARANTY 0.71 0.07 0.07 158.11 0.05 9.61 6.20% 30-Apr-08
INTERCONTINENTAL 0.76 0.10 0.10 46.02 0.07 2.90 1.87% 02-Apr-08
OCEANIC 0.81 0.05 0.05 63.91 0.04 3.96 2.55% 29-Feb-08
SKYEBANK 0.91 0.07 0.07 42.25 0.05 2.68 1.73% 28-Feb-08
IBTC 2.79 0.17 0.17 611.00 0.12 37.09 23.94% 02-Oct-08
STERLNBANK 2.79 0.17 0.17 72.07 0.12 4.75 3.07% 31-Dec-08
UBA 1.00 0.09 0.09 110.19 0.06 6.78 4.37% 01-Feb-08
UBN 1.06 0.09 0.09 81.43 0.07 5.06 3.27% 02-Oct-08
UNITYBNK 0.78 0.08 0.09 151.95 0.07 9.26 5.98% 02-Oct-08
WEMABANK 7.39 0.14 0.10 15.69 0.07 1.89 1.22% 31-Mar-08
ZENITHBANK 0.77 0.08 0.08 56.80 0.06 3.55 2.29% 01-Feb-08
100.00%MEDIAN SCORE 4.80%
After data entry on the internal spread;All inputs are entered from each firm’s financials and transformed into comprehensive weights before assigning a score to allocate
permissible weights.
Qualitative factor’s may change the final output
Jan 2008-July 2010: the black lines represent computed z-scores, the coloured lines reflect forecast levels
Z<1.8 = “default”, 1.8<Z<3.0 “troubled credit”….>3.0 “Okay”
Jan 2008-July 2010: the black lines represent computed z-scores, the coloured lines reflect forecast levels
Z<1.8 = “default”, 1.8<Z<3.0 “troubled credit”….>3.0 “Okay”
Jan 2008-July 2010: the black lines represent computed z-scores, the coloured lines reflect forecast levels
Z<1.8 = “default”, 1.8<Z<3.0 “troubled credit”….>3.0 “Okay”
Below required score …future looked manageable
Jan 2008-July 2010: the black lines represent computed z-scores, the coloured lines reflect forecast levels
Z<1.8 = “default”, 1.8<Z<3.0 “troubled credit”….>3.0 “Okay”
Clear sign of default
The industry average Z-scored over the period
Allocation limits are based on these screens to mitigate counterparty risk and form basis for negotiation with deposit placement lines
Resulting deposit placement limits… and tenures
