Euromoney Audit Training

COURSE BACKGROUND:

This practical training course examines sophisticated risk assessment and analytical techniques used by leading market analysts, including the rating agencies. These include a structured methodology for assessing the strength/weakness of a country's financial system, as well as techniques to factor in new risks linked to the changing role of the IMF and other multinational agencies. Delegates will examine in detail the different analytical techniques used for emerging markets and developed countries. The focus will be anticipating changes in the credit profile of countries, also as assessed by other market participants including the international rating agencies. The use of data sources will be discussed, as will the use of quantitative modelling techniques for risk and portfolio management.

The course is designed for professionals in financial and corporate institutions who need to measure and monitor the risks and opportunities of operating and investing in a range of markets. Case studies will be drawn from Eastern Europe, Latin America, and Asia, and selected comparisons made with industrialised countries.

COURSE OBJECTIVES:

This is a 4-day expert practical workshop designed to equip delegates with the skills to analyse and mitigate country risk, including:

• How debt market participants measure and price country risk
• Understand the circumstances and factors that drive country defaults
• Identify the key factors behind geo-political risk
• Compare the risk analysis of emerging countries with that of developed markets
• Why banking and financial systems are an essential ingredient in the analysis
• Assessing the risks in sub-sovereign counterparties and borrowers
• The risks inherent in off-shore banking centres

WHO SHOULD ATTEND?

• Country / Sovereign Risk Analyst
• Chief Economist
• Head of Correspondent Banking
• Credit Risk Analyst
• Head of Risk Management
• Head of Trade / Export Finance
• Head of Emerging Markets

DAY 1:

SOVEREIGN DEBT, CREDIT RATINGS AND DEFAULT

• Course overview; definitions
• Sovereign debt issuance, historic patterns

Case study: USA 1933

• Local currency vs. foreign currency debt characteristics
• The investors in sovereign paper

Case study: issuance of and investors in Latin American debt

RATING AGENCIES

• What are ratings
• How rating agencies assess sovereign risk
• The relationship between bond yields and country ratings
• Accuracy of ratings
• Disagreements between agencies
• Controversial rating decisions

INVESTORS’ EXPECTATIONS AND REQUIREMENTS

THE ECONOMIC MODEL

• Central planning
• Economic liberalisation
• Capitalist
•  Transition

Case studies: New Zealand and Czech Republic

DEFAULTS – SPECIAL NATURE OF SOVEREIGN DEFAULTS AND ITS CONSEQUENCES

• Legal issues
• Court judgements
• Sovereign immunity
• The rescheduling of sovereign debt
• Forced debt exchanges
• Local currency vs. foreign currency treatments

Case study: Argentina

Day 2:

THE CREDIT ANALYSIS ANALYTICAL INPUTS

• Comments on the importance and limitations of the statistical approach
• Qualitative inputs
• Social structures
• Political system
• The power base
• Stability and predictability of responses

Case study: Turkey

QUANTITATIVE INPUTS

• The fiscal position
• Monetary policy
• Indebtedness: domestic and the external position
• Foreign currency reserves
• Balance of payments

Case study: China

OTHER CREDIT DRIVERS:

• The exchange rate – currency boards
• The importance of the financial system
• Public sector vs. private sector institutions
• Domestic regional factors; sub-sovereign financial structures
• Supranational relationships – the IMF, EU, other supporting bodies
• The end of the IMF contingent credit plan

CAPITAL CONTROLS AND REGULATION

• Private capital flows – the hazards and the benefits
• The dangers of ‘moral hazard’

Case study: Asian financial crisis

Day 3:

FINANCIAL INSTITUTIONS ANALYSIS: BANKS AND THE FINANCIAL SYSTEM

THE OPERATING ENVIRONMENT

• Emerging market vs developed markets issues
• Capital flight
• Relationship with the stock and the bond / government securities markets

THE ROLE OF THE INSTITUTION IN THE SYSTEM

• Franchise value
• The payments system
• Government involvement in the banking / financial system – ownership; directed lending
• The "too big to fail" concept

Case study: Korea

MANAGEMENT AND FINANCIAL FUNDAMENTALS

• CAMELS topics, stressing:
• Analysing the quality of capital
• Loan diversification vs concentrationNPL resolution techniques and hazards
• The importance of core earnings
• Liquidity – funding structures, and the role of the market / central bank
• Accounting issues and practices
• Capital and regulation: domestic and international; Basel I and II
• Asset quality crises and systemic insolvency: the historical experience and lessons for the future:
• Emerging markets
• Developed economies

Case studies: comparison of the US banking system and Eastern Europe systems

Other non-CAMELS risks: anti-money laundering compliance

Other business lines: capital markets

Investment banking / trust / fiduciary businesses

Operational risk

The globalisation of banking – hazards

The analysis of diversified or global banking groups, and diversified industrial / financial conglomerates

Case study: Selected UK bank LloydsTSB

Day 4:

Major case study

A pair of major case studies: analysis of a developed and an emerging economy – [Singapore vs. Poland]

• Debt issuance patterns and investor profile
• Current credit ratings and historical trends
• Previous defaults / swaps qualitative and quantitative data inputs
• Domestic and international support
• Structures or vulnerabilities
• The financial systems

ECONOMETRIC APPROACHES TO COUNTRY AND POLITICAL RISK ASSESSMENT

• Use of historical data – risk premia, debt levels
• Discounted cash flow measures
• Use in portfolio management

CAUSE AND EFFECT: SOME RECENT EXPERIENCES

• Hedge funds: did they trigger the Asian Crisis?
• Russia and long-term capital management: the link

CHARACTERISTICS OF SUB-SOVEREIGN ISSUERS

OFF-SHORE BANKING CENTRES AND COUNTRY RISK

OFF-BALANCE SHEET EXPOSURES OF SOVEREIGNS AND SUB-SOVEREIGNS

• Direct exposures
• Guarantees and contingent liabilities
• The government / state sector
• The private sector
• The financial system

SECURITISATION ISSUES

The relationship between the government’s credit quality and that of other major borrowers in the country – the "country ceiling" concept

Case study: LatAm oil deal

Course summary & review

• Nicholas Krasno

  Nicholas Krasno has over thirty years experience in the financial and banking world. Prior to his career with Moody’s his specialisations in the corporate governance field included corporate governance advisory for companies, governance reviews and assessments and training for management and directors. He also advises on: strategic development; risk analysis and metrics; credit portfolio and capital management for banks and financial institutions including Basel II compliance; the development of securitisation and capital markets; prudential bank supervision and regulation, credit rating agency development and regulation.

  Courses run by this instructor

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Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.

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