Perspectiva del Sistema Bancario Mexicano Solicitud de Comentarios sobre la Propuesta de Nueva Metodología de Bancos Moody’s de México Seminario Anual

Perspectiva del Sistema Bancario Mexicano

Solicitud de Comentarios sobre la Propuesta de Nueva Metodología de Bancos

Moody’s de México Seminario Anual - Septiembre 2014 David Olivares VP-SCO / Felipe Carvallo VP-SA

Moody’s de México Conferencia Anual Septiembre 2014

Agenda

Parte 1. Perspectiva del Sistema Bancario: México

1. Factores de Calificación Clave para la Perspectiva Estable

Parte 2. Solicitud de Comentarios: Propuesta de Nueva Metodología de Bancos

1. Visión General

2. Estructura de las Evaluaciones del Riesgo Crediticio Base de Bancos (BCA)

3. Apoyo y Análisis Estructural

4. Resumen y Análisis de Impacto Preliminar


Perspectiva del Sistema Bancario: México

Parte 1

Moody’s de México Conferencia Anual Septiembre 2014 4

Universo Calificado de Bancos de Moody’s


Factores de Calificación Clave para la Perspectiva Estable1


La perspectiva para el sistema bancario ha sido estable desde el 2010Ambiente Operativo

Positivo

+ Las reformas mejoran los prospectos económicos. El PIB potencial eventualmente alcanzará el 3%-4% (2%-3% antes de las reformas). Las reformas, sin embargo, tomarán tiempo para dar frutos.+ Bajas tasas de interés e inflación apoyarán la demanda crediticia, ingresos y calidad de activos.

Calidad de Activos y Capital

Estable

+/- Cambo en mezcla de activos, disminuye la exposición a riesgo gubernamental y aumentan creditos mas rentables (PyMEs, hipotecas y consumo). Sin embargo, estos créditos consumen más capital y requieren más provisiones.- Concentración en créditos corporativos grandes son un riesgo latente. La morosidad se estabilizará en niveles relativamente elevados, reflejando la continua expansión en los segmentos de mayor riesgo.+ El capital y las reservas son adecuadas para proteger contra riesgos crediticios.

Rentabilidad y Eficiencia

Estable

= El amplio MIN es resultado de depósitos estables de bajo costo y poder de fijación de precios. Los márgenes se mantendrán estable: balance entre enfoque activos de mayor rendimiento y disminución de tasas de interés.- Los costos de provisiones se mantendrán altos a medida que los bancos expanden la cartera de consumo y PyMEs.= Las ganancias en eficiencia serán limitadas mientras los bancos invierten en actualizar su infraestructura.

Fondeo y Liquidez

Estable

= Los bancos se benefician de depósitos estables en moneda local (60% de los pasivos). La dependencia en fondeo de mercado es moderada, limitando el riesgo de refinanciamiento.= La tenencia de valores gubernamentales líquidos ha disminuido, pero sigue alta y continuará reforzando la resistencia a choques de liquidez.+ La adopción del requerimiento de indicadores de liquidez de Basilea III (LCR, cobertura) en 2015 será suave y no limitará los planes de expansión de préstamos, particularmente en los grandes bancos.

Apoyo Sistémico

Estable

= Esperamos que la capacidad y la voluntad del gobierno para apoyar al sistema bancario seguirán siendo altas, sobre todo para los bancos de importancia sistémica.


Las Reformas

» Las reformas estructurales mejoran las perspectivas económicas de largo plazo.

» La reforma financiera incluye medidas para aumentar el acceso al crédito y simplificar el proceso de adjudicación de garantías.

» El impacto de las reformas será particularmente significativo en energía y telecomunicaciones.

» Las inversiones previstas en estos sectores generarán oportunidades de negocio directas e indirectas para los bancos.

» Las reformas, sin embargo, tomarán tiempo para dar resultados.

» Burós de Crédito / Banca de Desarrollo / Juzgados Especializados

Ambiente Operativo | Calidad de Activos y Capital | Rentabilidad y Eficiencia | Fondeo y Liquidez | Apoyo Sistémico


Algunos indicadores macro son estables o empiezan su recuperación, a pesar de la baja actividad económica

* Índice Global de Actividad EconómicaFuente: Instituto Nacional de Estadística y Geografía (INEGI)


Mar-

13

Ap

r-1

3

May-1

3

Jun

-13

Jul-

13

Au

g-1

3

Sep

-13

Oct

-13

Nov-1

3

Dec-

13

Jan

-14

Feb

-14

Mar-

14

Ap

r-1

4

May-1

4

Jun

-14

3%

4%

5%

6%

85

90

95

100

105

110

115 Tasa de Desocupación Índice de Confianza del ConsumidorIGAE*

Tasa

de D

eso

cup

aci

ón

, (%

)

IGAE e Índice de Confianza del Consumidor, (Puntos Base)


El crédito bancario/PIB esta aumentando, pero aun por debajo del promedio de la región


Nota: Información de México a diciembre 2008 y diciembre 2013.Fuente: Moody's, Superintendencia de Bancos e Instituciones Financieras (Chile), Banco Central do Brasil, Superintendencia Financiera de Colombia, CNBV, Superintendencia de Banca y Seguros (Perú), Fondo Monetario Internacional (FMI) y el Banco Mundial

Chile Brasil Colombia Perú México Argentina0%

10%

20%

30%

40%

50%

60%

70%

80%

90%Préstamos Bancarios / PIB

Dic-13 Dic-04


Cambio gradual en la composición de activos


Nota: Exposición a Riesgo Gubernamental = Bonos Gubernamentales (90% de Inversiones en Valores) + Cartera de Crédito a Entidades Gubernamentales Fuente: Comisión Nacional Bancaria y de Valores (CNBV)

Comercial44%

Consumo22%

Vivienda17%

Gobierno13%

Instituciones Financieras

4%Jun-14

Dec-0

9

Apr-1

0

Aug-1

0

Dec-1

0

Apr-1

1

Aug-1

1

Dec-1

1

Apr-1

2

Aug-1

2

Dec-1

2

Apr-1

3

Aug-1

3

Dec-1

3

Apr-1

428%

33%

38%

Exposición a Riesgo Gubernamental / Activos Totales


Hipotecas y créditos a PyMEs y consumo son críticos para el crecimiento


Fuente: Comisión Nacional Bancaria y de Valores (CNBV)

Jan

-12

Feb

-12

Mar-

12

Ap

r-1

2M

ay-1

2Ju

n-1

2Ju

l-1

2A

ug

-12

Sep

-12

Oct

-12

Nov-1

2D

ec-

12

Jan

-13

Feb

-13

Mar-

13

Ap

r-1

3M

ay-1

3Ju

n-1

3Ju

l-1

3A

ug

-13

Sep

-13

Oct

-13

Nov-1

3D

ec-

13

Jan

-14

Feb

-14

Mar-

14

Ap

r-1

4M

ay-1

4Ju

n-1

4

-5%

0%

5%

10%

15%

20%

25%

30%Comercial Consumo Vivienda Estados y Municipios Cartera Total

Tasa

s d

e C

reci

mie

nto

Nom

inal (1

2

Mese

s) p

or

Tip

o d

e P

rést

am

o, (%

)


Calidad de activos relativamente estable; balance de crecimiento económico y enfoque en créditos de mayor riesgo


Jan

-11

Mar-

11

May-1

1

Jul-

11

Sep

-11

Nov-1

1

Jan

-12

Mar-

12

May-1

2

Jul-

12

Sep

-12

Nov-1

2

Jan

-13

Mar-

13

May-1

3

Jul-

13

Sep

-13

Nov-1

3

Jan

-14

Mar-

14

May-1

4

0%

1%

2%

3%

4%

5%

6%Cartera Total Comercial Consumo

Índ

ice d

e M

oro

sid

ad

, (%

)

Fuente: Comisión Nacional Bancaria y de Valores (CNBV)


A medida que los bancos presten más, utilizarán más capital, pero el capital básico es fuerte...


Jan

-12

Feb

-12

Mar-

12

Ap

r-1

2M

ay-1

2Ju

n-1

2Ju

l-1

2A

ug

-12

Sep

-12

Oct

-12

Nov-1

2D

ec-

12

Jan

-13

Feb

-13

Mar-

13

Ap

r-1

3M

ay-1

3Ju

n-1

3Ju

l-1

3A

ug

-13

Sep

-13

Oct

-13

Nov-1

3D

ec-

13

Jan

-14

Feb

-14

Mar-

14

Ap

r-1

4M

ay-1

4Ju

n-1

4

13.0%

13.5%

14.0%

14.5%

15.0%

15.5%

16.0%

16.5%

17.0%Índice de Capitalización (ICAP)Indicador Regulatorio de Capital Básico (Tier 1)

Fuente: Banco de México (Banxico)


… y proporciona una amplia capacidad de absorción de pérdidas


0%

2%

4%

6%

8%

10%

12%

14%12.7%

11.4%-3.9%

+1.3%+2.1% -0.8%

Escenario Adverso

Índice de capital bá-sico (Tier 1) Ajusta-

do

Utilidades Futuras

(12 meses)

Índice de capital bási-co (Tier 1) Escenario Adverso

Pérdida Espera-da en

Cartera

Reservas para

Riesgos de Crédi-

to

Crecimien-to de Acti-vos Sujetos

a Riesgo

Fuente: Moody’s

14.1%


Amplio margen a pesar de menores tasa de interés.


Fuente: Moody’s, Comisión Nacional Bancaria y de Valores (CNBV) y Banco Nacional de México (Banxico)

Jan

-12

Feb

-12

Mar-

12

Ap

r-1

2M

ay-1

2Ju

n-1

2Ju

l-1

2A

ug

-12

Sep

-12

Oct

-12

Nov-1

2D

ec-

12

Jan

-13

Feb

-13

Mar-

13

Ap

r-1

3M

ay-1

3Ju

n-1

3Ju

l-1

3A

ug

-13

Sep

-13

Oct

-13

Nov-1

3D

ec-

13

Jan

-14

Feb

-14

Mar-

14

Ap

r-1

4M

ay-1

4Ju

n-1

4

2.00%

2.25%

2.50%

2.75%

5.0%

5.2%

5.4%

5.6%

5.8%

6.0%Costo de Fondeo

Cost

o d

e F

on

deo, (%

)

MIN, (%)

» Pricing power

» Mezcla de cartera


Alto gasto en provisiones por enfoque a créditos de mayor riesgo


Fuente: Comisión Nacional Bancaria y de Valores (CNBV) and Banco de México (Banxico)

Jan

-12

Feb

-12

Mar-

12

Ap

r-1

2M

ay-1

2Ju

n-1

2Ju

l-1

2A

ug

-12

Sep

-12

Oct

-12

Nov-1

2D

ec-

12

Jan

-13

Feb

-13

Mar-

13

Ap

r-1

3M

ay-1

3Ju

n-1

3Ju

l-1

3A

ug

-13

Sep

-13

Oct

-13

Nov-1

3D

ec-

13

Jan

-14

Feb

-14

Mar-

14

Ap

r-1

4M

ay-1

4Ju

n-1

4

20%

25%

30%

35%

40%

45%

50%

55%Provisiones / Utilidad Antes de Impuestos y Prov...


A pesar de una mayor proporción de bonos en el fondeo, el riesgo de refinanciamiento es limitado

Fuente: Comisión Nacional Bancaria y de Valores (CNBV) y Banco de México (Banxico)


Jan-

09

Apr-0

9

Jul-0

9

Oct-0

9

Jan-

10

Apr-1

0

Jul-1

0

Oct-1

0

Jan-

11

Apr-1

1

Jul-1

1

Oct-1

1

Jan-

12

Apr-1

2

Jul-1

2

Oct-1

2

Jan-

13

Apr-1

3

Jul-1

3

Oct-1

3

Jan-

14

Apr-1

40%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

95%

97%

99%

101%

103%

105%

107%

109%

111%

113%

115%

Vista y Ahorro Plazo InterbancariosPlazo (MD) Bonos Bancarios Cartera / Depósitos

Me

zcla

de

Fo

nd

eo

, (%

)

Cartera / Depósi-tos, (%)


Disposición para apoyar a bancos de importancia sistémica en caso de estrés se mantiene*


* Probable cambio – RFC – cambio más significativoFuente: Moody's

Banco

mer

Banam

ex

Santa

nder

Méxi

co

Banort

e

HSB

C M

éxi

co

Deuts

che M

éxi

co

Sco

tiabank

Méxi

co

Inte

racc

iones

BanB

ajío

Azt

eca

BanR

egio

Barc

lays

Méxi

co

Ve p

or

Más

BTM

UM

Volk

swagen M

éxi

co

1

3

5

7

9

11

13

15

17

19

21

Evaluaciones del Riesgo Crediticio Base (BCA, por sus siglas en inglés)Apoyo de Casa Matriz Apoyo Sistémico

AaaAa1Aa2Aa3A1A2A3Baa

1Baa

2Baa

3Ba1Ba2Ba3B1B2B3Caa

1Caa

2Caa

3CaC


Solicitud de Comentarios: Propuesta de Nueva Metodología de Bancos

Parte 2


Vision General1


Request for Comment HighlightsKey proposed changes to our methodology respond to three core objectives:

1. Build on the strengths of the existing methodology:

New scorecard focuses on a relatively small number of simple, predictive metrics

Backtesting has shown these to be strongly predictive of failure or the need for support

Analysts and rating committees to consider additional ratios as relevant for each institution

New ‘Macro Profile’ derived from Sovereign Rating governs calibration

Each financial factor scored as a function of both a financial ratio and the Macro Profile

Forward-looking expectations and scenario analysis fully integrated into the Scorecard

2. Respond to the fundamental shift in the way failing banks are resolved or recapitalized in certain jurisdictions

Distinguish loss severity by individual creditor classes for banks subject to resolution

Recognise that deposits may be preferred to senior unsecured debt in resolution

3. Refine underlying concepts of Joint-Default Approach

“Systemic support indicators” replaced by the sovereign rating

Panorama | Riesgo Crediticio Base | Apoyo y Análisis Estructural | Impacto General


Proposed Rating StructureSequential approach maintained

LGF liability analysis in Operational Resolution

Regimes

Introduction of a Macro Profile

Elimination of Systemic Support Indicator



Estructura de las Evaluaciones del Riesgo Crediticio Base de Bancos (BCA)

2


Our bank Baseline Credit Assessments describe the probability of a bank defaulting on any of its rated instruments, in the absence of external support. There are three stages to the BCA analysis:

1. Macro Profile: Reflects systemic risks (common to all banks in a given system)

2. Financial Profile: Key bank-specific financial metrics

3. Qualitative Adjustments: Additional qualitative and quantitative factors

BCA Structure



1. Macro Profile

Macro Profile builds on three sovereign scorecard components, and three banking components.

Sovereign Component Banking ComponentKEY:

1

Credit Conditions

3

Susceptibilty to Event Risk

2

Institutional Strength *

1

Economic Strength

Unadjusted Banking System Macro Profile

Banking System Macro Profile

Banking Country Risk

Industry Structure

Adjustment

3

Funding Conditions Adjustment

2

1. Systemic performance correlated with macroeconomic conditions. Measured by GDP growth/volatility, Global Competitiveness Index.

2. Banks depend on legal framework to enforce contracts. Measured by WB Corruption and Rule of Law Indices, inflation level/volatility.

3. Banking system exposed to same external and political vulnerabilities as sovereign. Measured by External Vulnerability indicator, domestic political risk.

Rapid credit expansion can be a significant leading indicator of credit quality problems. Measured by level and growth rate of Credit to GDP

As Credit Conditions deteriorate, weight of Banking Country Risk decreases

2. Funding problems can both reflect and create systemic vulnerabilities. Measured by market funding measures/cost, central bank balance sheets.

3. Under/over capacity or competitive distortions (government interference) may indicate strengths or vulnerabilities.



Macro Profile Rank Ordering

Moody’s macro profiles for selected economies:

Se

lect

ed

Ma

cro

Pro

file

Ra

nk

Ord

erin

g

CountryBanking Country

RiskCredit Conditions

Funding Conditions

Industry Structure

Banking System Macro Profile

Australia Aaa - Aa2 Neutral -1 1 Very Strong

United States Aaa - Aa2 Weak + 1 -1 Very Strong -

Canada Aaa - Aa2 Weak 0 1 Very Strong -

France Aaa - Aa2 Neutral -1 0 Very Strong -

Germany Aaa - Aa2 Neutral 0 -1 Very Strong -

United Kingdom Aaa - Aa2 Neutral 0 -1 Very Strong -

Chile Aa1 - Aa3 Weak 0 0 Strong +

Korea Aa1 - Aa3 Weak + -1 0 Strong +

Saudi Arabia Aa3 - A2 Weak + 0 0 Strong

Mexico A1 – A3 Neutral 0 0 Strong

Brazil A2 – Baa1 Weak + 0 0 Moderate +

Panama A3 – Baa2 Weak 0 -1 Moderate -

Uruguay A2 - Baa1 Neutral -1 -1 Moderate

Italy A2 - Baa1 Weak -1 0 Moderate

Spain A2 - Baa1 Weak -1 0 Moderate

Peru Baa1 - Baa3 Neutral 0 0 Moderate +

Colombia Baa2 - Ba1 Neutral 0 0 Moderate

Costa Rica Baa2 – Ba1 Weak +l 0 -1 Moderate -

Russia Baa1 - Baa3 Neutral -1 0 Moderate

Dominican Republic Ba1 – Ba3 Weak - 0 -1 Weak

Bolivia Ba3 – B2 Neutral 0 0 Weak

Argentina B3 – Caa2 Weak 0 0 Very Weak +

Ukraine B3 - Caa2 Weak + 0 0 Very Weak +

Egypt B2 - Caa1 Very Weak + -1 0 Very Weak

Cyprus B2 - Caa1 Very Weak -3 0 Very Weak -



2. Financial Profile

In our assessment of a bank’s financial profile we score key risks and their mitigants

Tangible assets = total assets less derivatives less goodwill and other intangibles

Tangible banking assets = total assets less derivatives less goodwill and other intangibles less insurance investments



VS+ VS VS- S+ S S- M+ M M- W+ W W- VW+ VW VW-VS+ aaa aaa aa1 aa1 aa2 aa3 a1 a3 baa1 baa2 ba1 ba3 b2 caa1 caa3VS aaa aa1 aa1 aa2 aa3 a1 a2 a3 baa1 baa3 ba1 ba3 b2 caa1 caa3VS- aa1 aa1 aa2 aa2 aa3 a1 a2 baa1 baa2 baa3 ba2 b1 b2 caa1 caa3S+ aa1 aa2 aa2 aa3 a1 a2 a3 baa1 baa2 ba1 ba2 b1 b3 caa1 caa3S aa2 aa2 aa3 a1 a2 a3 baa1 baa2 baa3 ba1 ba3 b1 b3 caa1 caa3S- aa3 aa3 a1 a2 a3 a3 baa2 baa3 ba1 ba2 ba3 b2 b3 caa2 caa3M+ a1 a1 a2 a3 a3 baa1 baa2 baa3 ba2 ba3 b1 b2 b3 caa2 caa3M a2 a2 a3 baa1 baa1 baa2 baa3 ba1 ba2 ba3 b1 b3 caa1 caa2 caa3M- a3 a3 baa1 baa2 baa3 baa3 ba1 ba2 ba3 b1 b2 b3 caa1 caa2 caa3W+ baa1 baa2 baa2 baa3 ba1 ba2 ba2 ba3 b1 b2 b3 b3 caa1 caa2 caa3W baa2 baa3 ba1 ba1 ba2 ba3 ba3 b1 b2 b3 b3 caa1 caa2 caa2 caa3W- baa3 ba1 ba2 ba3 ba3 b1 b2 b2 b3 b3 caa1 caa1 caa2 caa2 caa3VW+ ba1 ba3 ba3 b1 b2 b2 b3 b3 caa1 caa1 caa2 caa2 caa2 caa3 caa3VW ba3 b1 b2 b3 b3 caa1 caa1 caa1 caa2 caa2 caa2 caa2 caa3 caa3 caa3VW- b1 b3 caa1 caa1 caa2 caa2 caa2 caa3 caa3 caa3 caa3 caa3 caa3 caa3 caa3

Financial Ratio

Mac

ro P

rofil

e

Initial BCA score derived from Financial & Macro ProfilesRating of banks in weak systems are less sensitive to their individual financial metrics and more reflective of changes in the macro environment.

Example: Bank’s Financial Ratio Country’s Macro Profile Initial Score

Bank in Country 1 Moderate Strong baa2

Bank in Country 2 Moderate Weak b1

VERY STRONG +

VERY WEAK -



Assigned scores incorporate forecasts, auxiliary ratios, qualitative aspects & stress scenarios.

Example Scorecard: Financial Profile 5 6 7 10 11

Historic Ratio Initial ScoreExpected

trendAssigned

ScoreKey driver #1 Key driver #2

SolvencyAsset Quality

Problem Loans / Gross Loans 2.0% a1 ↓↓ baaGeographical concentration

Downward trend

Capital

Tanigble Common Equity / RWA 8.5% ba2 ↔ b Nominal leverage

Profitability

Net Income / Tangible Assets 1.0% a3 ↔ a Earnings quality

Combined Solvency Score baa1 baa

LiquidityFunding Structure

Market Funds / Tangible Banking Assets 15.0% a2 ↔ baa Maturity transformation

Liquid ResourcesLiquid Banking Assets / Tangible Banking

Assets20.0% baa1 ↑ baa Intragroup restrictions

Combined Liquidity Score a3 baa

Financial Profilebaa3

Example Scorecard: Qualitative factors quantified

Financial factors

Score incorporating Macro Profile



3. Qualitative Adjustments

We may adjust our initial BCA score by one or more notches if we judge any of these factors has a material bearing on the bank’s overall risk profile.

Gauges a bank’s sensitivity to deterioration in a single business line.

+ Positive adjustmentsE.g. a one-notch increase for a firm with a diverse range of business activities that provide an overall reliable earnings stream.

- Negative adjustmentsE.g. a one-notch decrease for a bank which derives more than about three-quarters of its revenues or earnings from a single business line.

1

Business diversification

2

Opacity and complexity

3

Corporate behavior

An institution’s riskiness increases with its complexity, other things being equal.

+ Positive adjustmentsNone.

- Negative adjustmentsE.g. a one-notch decrease (or more in extreme cases) if a bank has numerous business lines across many geographies and legal entities, significant exposure to derivatives, complex legal structure, large, complex and / or long-dated exposures to other financial institutions.

A bank’s creditworthiness can be influenced by what we term its “corporate behavior”, which can also signal other concerns.

+ Positive adjustmentsRare one-notch increases, e.g. from sustained exemplary stewardship over time with tangible impact on the risk profile

- Negative adjustmentsOne or more notch decreases considering the following factors: key man risk, insider and related party risks, strategy and management, dividend policy, and compensation policy.



Apoyo y Análisis Estructural3


1. Affiliate Support: An entity may be supported by other entities within a group

2. Loss Given Failure (LGF): Liability analysis to assess the impact of a failure of the bank on its various debt classes absent government support

3. Government Support: An entity may be supported by local or the federal government

Support & Structural Analysis consists of 3 elements

» How likely is a bank to be supported by affiliates?

» Determines the Adjusted BCA

» The risk that different creditors are exposed to in the event of the failure of a bank, absent support

» This enables us to distinguish between the BCA, bank senior unsecured, bank holding company senior unsecured, and deposits

» The extent to which risks to creditors are mitigated by public support


A major innovation is the introduction of LGF

Better distinguishing types of debt protecting depositors

Lose s determined by the tranche of debt subordinated to each class

And the size of each debt tranches


No proposed change to our approach to assessing Affiliate Support

Affiliate Support

Variables remain as follows:

Probability of Default (PD) = (1- Support Probability) * BCA + Support Probability * ((Dependence

* min (BCA, Support Provider rating) + (1 - Dependence ) * BCA * Support Provider rating)

Unsupported rating (BCA)

CreditworthinessSupport probability

Dependence (correlation)1 2 3 4

These will determine a range of potential uplift under our Joint-Default Approach (JDA)



European Union, United States (Title I and Title II), Switzerland, Others (esp. G-20) likely to follow

Loss Given Failure (LGF) Liability Analysis

» Specific legislation enabling orderly resolution of failed bank

» Clarity of impact on depositors and other creditors

» Reduced probability of government support for senior creditors

YES

WHERE:

Loss Given Failure (LGF) Liability Analysis

Operational Resolution Regime?

NotchingSenior unsecured rating: Adjusted BCA

Dated subordinated debt rating: Adjusted BCA -1

Everywhere else, for now (i.e. Latin America)

» Expectation that the largest, most systemically important banks are typically resolved through support rather than bail-in

» Statutory alternative is bankruptcy, but resolution approaches tend to be defined only in a crisis

NO

For banks in countries with Operational Resolution Regimes (ORR), we apply LGF liability analysis; elsewhere, we use current notching.

34

WHERE:

ORRs allow banks to selectively default on certain instruments outside of bankruptcy



Loss Given Failure Liability Analysis

We combine our Macro Profile and the resolution approach to determine the median loss rate

We identify affected debt and deposits. However, we recognize that the bank’s balance sheet at the time of failure may differ materially from its current structure.

We look at the hierarchy of claims (subordination) assuming liquidation

Impact of the failure of the bank on its various debt classes in the absence of any government support



Government Support

Government support is assessed for each creditor class and uplift derived using JDA.

We will use sovereign rating rather than systemic support indicators (SSI)

95-100%

70-95% Very High50-70% High30-50% Moderate0-30% Low

Notching within the JDA range is a Rating Committee judgment

Updated from current 100% only90% Very High70% High50% Moderate

NEW

Government Backed

36

Government support does not necessarily apply to all debt classes, even in countries without Resolution Regimes.



Capacity of Country to Provide Support

37

» Rationale for the change being proposed

― Liquidity crisis will often degrade into a solvency crisis, as seen during crisis

― Central bank liquidity support can keep banks afloat, but solvency issues require recapitalization, which is beyond a central bank’s powers

― Also, as governments become increasingly involved in the rescue of banks, the country’s capacity to bail-out its system converges towards the government’s fiscal capacity, and thus its bond rating

Government support capacity is assessed by its rating.



4 Resumen y Análisis de Impacto Preliminar


IMPACT-3 -2 -1 0 1 2 3 BCAs notch change BCA

North America 77 0.0 a3

EU 248 0.0 ba2

Asia Pacific 173 0.1 baa3

CIS and Western Asia

144 0.0 b2

Latin America 116 0.0 ba2

MEA 102 -0.1 ba2

Other Western Europe

35 0.0 baa1

WORLD 895 0.0 ba2

Number of existing

Weighted average Balance

up / down

Average

0% 0% 3% 97% 0% 0% 0%

0% 0% 2% 89% 4% 3% 0%

0% 0% 2% 89% 6% 3% 0%

0% 0% 1% 93% 6% 0% 0%

0% 2% 3% 91% 4% 0% 0%

0% 1% 8% 87% 4% 0% 0%

0% 0% 3% 92% 5% 0% 0%

0% 0% 3% 91% 5% 1% 0%

-3%

4%

7%

-6%

4%

-1%

3%

2%

Impact Analysis: Baseline Credit Assessment

We expect impact on baseline credit assessments (BCAs) to be limited.

NUMBERS ARE NOT FINAL



Impact Analysis: Local Currency Deposit Ratings

IMPACT-3 -2 -1 0 1 2 3 ratings notch change BCA

North America 77 1.7 A1

EU 251 1.2 Baa1

Asia Pacific 178 -0.1 A3


145 0.0 B2

Latin America 116 -0.1 Ba1

MEA 103 -0.1 Baa2

Other Western Europe

35 0.2 A2

WORLD 905 0.5 Baa2

Balance Number of

existing Weighted average Average

up / down

0% 0% 0% 12% 8% 74% 5%

0% 0% 5% 21% 28% 42%4%

0% 3% 5% 89% 2% 1% 0%

0% 0% 1% 95% 3% 0% 0%

0% 0% 12% 85% 2% 1% 0%

0% 0% 16% 82% 2% 0% 0%

0% 0% 0% 88% 9% 0% 3%

0% 1% 6% 63% 10% 18% 2%

88%

69%

-4%

-14%

2%

-10%

13%

24%




Local Currency Senior Unsecured Debt

LGF positively affects senior debt ratings in Europe, but negatively in the US

IMPACT Number in-3 -2 -1 0 1 2 3 Sample notch change rating

North America 72 -0.5 A3

EU and Other Western Europe

144 0.8 Baa1

Asia Pacific 31 -0.1 A1


48 0.0 B1

Latin America 22 0.0 Ba2

MEA 8 0.0 Ba1

WORLD 325 0.2 Baa2

Balance Weighted average Average

down / up

0% 1% 61%29%

6% 1% 1%

0% 0% 14% 24%36% 21% 3%

0% 3% 0% 97% 0% 0% 0%

0% 0% 2% 94% 4% 0% 0%

0% 0% 9% 86% 5% 0% 0%

0% 0% 0% 100% 0% 0% 0%

0% 1% 21%49%

18% 10% 2%

-54%

47%

-3%

0%

2%

-5%

9%




Ciudad de México:

David Olivares VillagómezVP-Senior Credit Officer+52 (55) [email protected]

Felipe Carvallo MendozaVP- Senior Analyst+52 (55) [email protected]

Busy Juárez HuerdoAssociate Analyst +52 (55) [email protected]

Lauren Kleiman TobalAssociate Analyst +52 (55) [email protected]

Vicente Gómez FacioAssociate Analyst +52 (55) [email protected]

Aaron FreedmanAssociate Managing Director +52 (55) [email protected]

www.moodys.com/ratingbanks

mailto:[email protected]







https://www.moodys.com/microsites/gbrm2014/index.html


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