Default Statistics
CRISL Default Statistics and Transition Metrics
The global slogan, after the default of a good number of global giants having high investment grade from rating agencies raised was “Who Rates the Raters?- a million dollar question infront of both the regulators and the investment community. The simple answer to the above lies in the review of the performance of a rating agency over the years in terms of its Default history at its various rating grades in the rating scale.
More specifically, for example, what is the percentage of default in its rating scale of Double A (AA) and at what time interval? The above statistics over a period of time indicates the efficiency of a rating agency, which works as the indicator of rating agency’s performance and seriousness in its work. These default statistics represent the benchmark of rating accuracy and in most of the cases are considered by the regulators in taking various decisions to control and measure the risk being undertaken by the banks and issuers, thereby directing the rating agencies to take various actions in the rating process.
Default Rate and Transition Rate
Default rate is the percentage of default to total rated entities in a particular time period in a specific scale. It is calculated for each rating scale for a multiple time periods. On the other hand, Transition rate is the percentage of rating changes to total rated entities for a particular time period. The transition of ratings may be upwards or downwards in the scale. For example an A rated Bond, over a period of time, might be downgraded to next lower scale BBB or upgraded to AA in view of change in forecasted fundamentals and other prevailing market factors. Both default rate and transition rate are helpful for managing credit risks, structuring and pricing of debt. These rates also indicate the accuracy (or inaccuracy) of rating agencies in forecasting the probability of default
CRISL Cumulative Default Rate (CDR)
CDR is the measure of movement of a rating category into 'Default Rating Category ' in a time horizon. This rating is applicable for those counterparties who are in default. The Default is considered to have occurred with regard to a particular obligor when either or both of the two following events have taken place.
• The bank considers that the obligor is unlikely to pay its credit obligations to the banking company or syndicate banking group, without recourse by the bank to actions such as realizing security (if held)
• The obligor is past due for more than 90 days or more as defined by BB
Regulator evaluates the consistency of an ECAI's rating category (Notch/Notation) through analysis of Cumulative Default Rate (CDR).
While recognizing rating agencies as External Credit Assessment Institute (ECAI) the Bangladesh Bank has approved separate rating scales for SMEs side by side with the rating scales for Corporate and other category of ratings. Based on the above CRISL has developed CDR against both Corporate and SME scales
CRISL CDR on SME rating
CRISL three years CDR for SME under investment grade (Se/Me-1 to Se/Me-4) stood at 3.09% with no default at Se/Me- 1 and Se/Me-2 rating notch. The CDR at Se/Me-3 notch stood at 1.22% which signifies that CRISL investment grade default is quite low against the backdrop of about 9.3% overall reported classified loan in the industry.
CRISL, being the first internationally recognized domestic rating agency in the country and also as a sponsor member of Association of Credit Rating Agencies in Asia (ACRAA) complies the regulation of calculating CDR in line with local regulatory requirement as well as compliance requirement of Basel Committee on Banking Supervision.
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Calculation of Weighted Average MDR (wMDR) for 2015, 2016, 2017 |
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wMDR for year 1 |
wMDR for Year 2 |
wMDR for Year 3 |
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Se/ Me1 |
0.00% |
0.00% |
0.00% |
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Se/ Me2 |
0.00% |
0.00% |
0.00% |
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Se/ Me3 |
1.22% |
0.00% |
0.00% |
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Se/ Me4 |
3.39% |
0.14% |
0.18% |
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Investment Grade (Se/ME1-Se/Me4) |
2.85% |
0.11% |
0.14% |
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Se/Me-5 |
59.49% |
2.39% |
2.48% |
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Se/Me-6 |
76.92% |
0.00% |
0.00% |
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Se/Me-7 |
100.00% |
0.00% |
0.00% |
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Se/Me-8 |
0.00% |
0.00% |
0.00% |
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Se/Me 9 |
0.00% |
0.00% |
0.00% |
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Calculation of 3-years Cumulative Default Rate (CDR3) for 2015, 2016, 2017 |
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CDR3 |
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Se/ Me1 |
0.00% |
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Se/ Me2 |
0.00% |
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Se/ Me3 |
1.22% |
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Se/ Me4 |
3.71% |
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Investment Grade (Se/ME1-Se/Me4) |
3.090% |
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Se/Me-5 |
61.44% |
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Se/Me-6 |
76.92% |
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Se/Me-7 |
100.00% |
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Se/Me-8 |
0.00% |
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Se/Me 9 |
0.00% |
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CRISL CDR on Corporate Rating
CRISL three years CDR for corporate under investment grade (AAA to BBB) stood at 2.28% with no default at AAA and AA rating notch.
The CDR at single A and BBB notch stood at 1.53% and 3.39% respectively which signifies that CRISL investment grade default is quite low against the backdrop of increasing default loan in the industry.
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Calculation of Weighted Average MDR (wMDR) for 2011, 2012, 2013 |
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wMDR for year 1 |
wMDR for Year 2 |
wMDR for Year 3 |
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AAA |
0.00% |
0.00% |
0.00% |
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AA |
0.00% |
0.00% |
0.00% |
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A |
0.30% |
0.77% |
0.47% |
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BBB |
0.91% |
1.58% |
0.94% |
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Investment Grade (AAA-BBB) |
0.57% |
1.08% |
0.65% |
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BB |
0.00% |
0.00% |
5.71% |
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B |
0.00% |
10.00% |
0.00% |
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CCC |
0.00% |
0.00% |
0.00% |
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CC |
0.00% |
0.00% |
0.00% |
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C |
50.00% |
50.00% |
0.00% |
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Calculation of 3-years Cumulative Default Rate (CDR3) for 2011, 2012, 2013 |
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CDR3 |
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AAA |
0.00% |
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AA |
0.00% |
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A |
1.53% |
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BBB |
3.39% |
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Investment Grade (AAA-BBB) |
2.283% |
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BB |
5.71% |
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B |
10.00% |
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CCC |
0.00% |
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CC |
0.00% |
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C |
75.00% |
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CRISL three years CDR for corporate under investment grade (AAA to BBB) stood at 1.44% with no default at AAA and AA rating notch.
The CDR at single A and BBB notch stood at 0.69% and 2.23% respectively which signifies that CRISL investment grade default is quite low against the backdrop of increasing default loan in the industry.
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Calculation of Weighted Average MDR (wMDR) for 2014, 2015, 2016 |
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wMDR for year 1 |
wMDR for Year 2 |
wMDR for Year 3 |
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AAA |
0.00% |
0.00% |
0.00% |
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AA |
0.00% |
0.00% |
0.00% |
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A |
0.35% |
0.23% |
0.12% |
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BBB |
0.80% |
0.88% |
0.57% |
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Investment Grade (AAA-BBB) |
0.55% |
0.56% |
0.34% |
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BB |
2.99% |
4.69% |
1.59% |
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B |
0.00% |
0.00% |
0.00% |
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CCC |
0.00% |
0.00% |
0.00% |
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CC |
0.00% |
0.00% |
0.00% |
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C |
0.00% |
0.00% |
100.00% |
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Calculation of 3-years Cumulative Default Rate (CDR3) for 2014, 2015, 2016 |
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CDR3 |
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AAA |
0.00% |
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AA |
0.00% |
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A |
0.69% |
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BBB |
2.23% |
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Investment Grade (AAA-BBB) |
1.444% |
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BB |
9.01% |
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B |
0.00% |
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CCC |
0.00% |
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CC |
0.00% |
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C |
100.00% |
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