Sovereign Risk Analysis: Understanding Rating Agency Methodologies

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Overview

This 3-day course will cover:

  • A structured approach to the analysis of sovereign and country risk in both mature and developing markets
  • The key drivers of country and sovereign risk in both mature and emerging markets
  • Qualitative, quantitative and market indicators of vulnerability
  • The impact of sovereign support and country risk on other exposures, including public sector entities
  • Lessons learned from the current and previous crisis in various regions of the world

Course background

Every country has at some time gone through a downturn or crisis that has affected their ability to operate in the financial environment. At the core of these crises are investors and others who have lost fortunes.

This program will look at how to analyze sovereign and country risk as well as price the risk into credit and business decisions. Using past and present events, the course will look at the changing international environment in order to provide delegates with the information they require to excel at risk analysis.

Who should attend?

This course is designed for sovereign analysts, credit risk managers, and other financial professionals who want to enhance their knowledge of sovereign risk analysis.

Inhouse


 

Do you have five or more people interested in attending this course? Do you want to tailor it to meet your company's exact requirements? If you'd like to do either of these, we can bring this course to your company's office. You could even save up to 50% on the cost of sending delegates to a public course.

To find out more about running this course in-house:





Our Tailored Learning Offering

If you want to run this course at a location convenient to you or if you want a completely customised learning solution, we can help.

We produce learning solutions that are completely unique to your business. We'll guide you through the whole process, from the initial consultancy to evaluating the success of the full learning experience. Our learning specialists ensure you get the maximum return on your training investment.

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We can offer any of our public courses delivered at your office or we can devise completely tailored solutions:


Read more about our offering or complete a call back request to speak to a learning specialist.

 

Agenda


Day 1

On this day, attendees will learn to distinguish between sovereign and country risk and understand how the rating agencies and other analysts assess these risks. In addition, an extensive review of the causes and effects of past and recent sovereign crises
will be performed. Topics for the day include;

  • History of sovereign default and crisis
  • Current and previous economic crises: causes, effects and differing impact on mature and emerging markets
  • Sovereign issuer analysis vs. country risk encompassing private sector
  • Role of IMF and other multilateral bodies
  • Rating agency sovereign methodology, capacity and willingness to service debt, foreign and local currency ratings
  • Transfer and convertibility risk: FX and local currency ratings, country ceilings
  • Market indicators: CDS, bond and equity indicators
  • Structured approach to analysis: purpose, payback, risks and structure
  • To use market prices to indicate credit perception
  • To apply a structured approach to understand sovereign debt issuance and payback

Case Study – Analyzing the Greek situation and the US downgrade and the resulting sovereign risk

  • Additional review - Analyzing the differing causes of a major sovereign default

 

Day 2


On day two, using the information from day one, we will use a structured approach to assess macroeconomic, sovereign debt exposures, political and financial sector factors in assessing sovereign risk.

  • Macroeconomic policies and performance
  • Economic growth, inflation, income levels
  • Monetary and fiscal policies
  • Foreign exchange regime risk profiles
  • Assess the relative risks and benefits of dollarization pegged or floating foreign exchange regimes
  • Market rates and purchasing power parity
  • Key performance indicators: benchmarks in mature and emerging economies

Case Study - review the macroeconomic strengths, weaknesses and policy options for a (1) highly rated, (2) intermediate and (3) lower rated sovereign.

  • Public finances and their role in risk
  • Fiscal policy and budgetary flexibility; primary budget balance; public sector balance
  • Assess the financing flexibility of various sovereigns
  • Sustainable debt and debt service burdens
  • Contingent risks: pension and health care, infrastructure
  • Case Study - review the public finance strengths, weaknesses and policy options for a (1) highly rated, (2) intermediate and (3) lower rated sovereign.
  • External finance review
  • Balance of payments: trade, current a/c
  • Export and import composition and trends
  • Reliance on volatile receipts e.g. commodities or remittances
  • External financing needs: exposure to volatile capital flows (portfolio capital and short term debt)
  • Net external debt burden relative to GDP and current account receipts
  • Central bank reserves and liquidity ratio
  • Review the external finance strengths, weaknesses and policy options for a different sovereigns
  • Identifying strong and weak performers across four regions from key economic data
  • Structural, political and governance risks
  • Savings and investment, capital flows
  • Business environment, trade and economic diversity and stability
  • Political risk: regime effectiveness and legitimacy, income disparity, conflict risk
  • International trade and political links
  • Governance: legal system, property rights, judicial process and corruption

Case Study: Using the Greek Crisis for identifying early warning external debt problems of a vulnerable sovereign

Financial Sector

  • Macro-prudential and financial strength indicators
  • How economic factors and regulation can affect the financial sector and how a weak financial sector can negatively affect a sovereign
  • Size and strength of banking system
  • Financial sector and overall intermediation levels, debt and equity capital markets
  • Regulatory responses to banking crisis

 

Day 3

Public sector entities (PSE)

  • Types of PSE: Government agencies; autonomous public bodies, state owned companies, not for profit companies fulfilling social missions
  • Rating criteria and notching down from sovereign or up from stand alone: dependent and non dependent PSE’s
  • Types of support: statutory guarantee, specific guarantee, written commitment, no written commitment
  • Criteria for analysis: legal status, integration, strategic importance, control, ability to support
  • Default and restructuring events, distressed debt exchanges
  • Private claims vs. official and multilateral creditors e.g. Paris club, IMF
  • Export credit agency buyer and supplier credit
  • Transfer risk and country risk insurance
  • Setting country limits

Case Study: applying the framework and tools of country risk analysis in various types of country / sovereign exposures.


Course Summary

Why us


We have a combined experience of over 60 years providing learning solutions to the world’s major organisations and are privileged to have contributed to their success. We view our clients as partners and focus on understanding the needs of each organisation we work with to tailor learning solutions to specific requirements.

We are proud of our record of customer satisfaction. Here is why you should choose us to help you achieve your goals and accelerate your career:

  • Quality – our clients consistently rate our performance ‘excellent’ or ‘outstanding’. Our average overall score awarded to us by our clients is nine out of ten.
  • Track record – we have delivered training solutions for 95% of worlds’ top 100 banks and have trained over 250,000 professionals.
  • Knowledge – our 150 strong team of industry specialist trainers are world leading financial leaders and commentators, ensuring our knowledge base is second to none.
  • Reliability – if we promise it, we deliver it. We have delivered over 20,000 events both in person and online, using simultaneous translation to delegates from over 180 countries.
  • Recognition – we are accredited by the British Accreditation Council and the CPD Certification Service. In an independent review by Feefo we scored 96% on service and 95% on product