The Group defines a rating system as all of the methods, processes, controls, data collection and IT systems that are used for the assessment of credit risk and for classification of exposures to a pool with a specified risk level, including the rules on the priority of rating models, if applicable, and the rules for overriding rating grades. Elements of the rating system include PD, LGD, CCF-EAD models (hereinafter: models) and methodologies for evaluating specialized lending.
Evaluation of the client's credit risk in respect to its probability of default (PD) is based on a uniform rating scale, referred to as the Master Scale.
The Master Scale (MS) has 15 risk grades, where ratings 1 to 3 are equivalent to a high credit quality, ratings 4-6: good credit quality, ratings 7-12 average and low credit quality and ratings 13-15 are procedural ratings used for impaired exposures.
All the clients with available lending, whether or not they actually use the approved credit limits and all other participants of credit transactions should have a previously awarded rating and should be assigned to an appropriate pool.
An adequate credit or rating policy should specify the model to be used for rating purposes or a homogenous pool for a given client segment.
Each PD model used must be calibrated to MS based on the observed or estimated probability of default.
The rating for governments, central banks, international organizations, multilateral development banks and Institutions may be assigned based on a rating awarded by recognized rating agencies, mapped to the Master Scale.
Should the above-mentioned entities have more than one classification awarded by recognised rating agencies (split rating) the rating corresponding to the second best risk shall be taken into account at all times.
The table showing relationships between internal and external risk grades is presented in chapter VIII of the Disclosures. The Bank recognizes the following external rating agencies for comparison purposes: Fitch, Moody’s, Standard & Poors.
A rating awarded through a behavioral model (behavioral rating) by default takes precedence over a rating awarded through an application model (application rating) if behavioral rating only is awarded.
Procedural ratings (13, 14 and 15 according to the Master Scale) are awarded to clients showing signs of deteriorating borrowing capacity and creditworthiness or with overdue debt.
Procedural ratings by default take precedence over application ratings.
After the pre-conditions necessary to award any of the procedural ratings are no longer satisfied, ratings 13 and 14 expire immediately, while rating 15 either expires or is maintained for a “quarantine period”.