Monthly Archives: November 2014

Webinar – Applying Standards for Counterparty Credit Risk, Dec 2, 3PM GMT, 830PM IST

Applying Standards for Counterparty Credit Risk – Centralising XVA Calculations

Date: Tuesday, December 2, 2014
Time: 3:00 p.m. GMT

Register Now

The onset of the financial crisis has spurred banks and regulators to integrate counterparty credit risk in their frameworks. The need to reflect on counterparty and own credit risk in the valuation of derivatives is a major concern for financial institutions and it also affects other types of corporate entities who may hold derivatives to hedge against interest rate and foreign exchange risk in their business.

For accounting FASB and IFRS provides that non-performance risk has to be reflected in the value. In the case of an asset this includes the counterparty credit risk (CVA). In the case of a liability held by an entity this includes its own credit risk (DVA), which also is linked to the cost of funding (FVA). Valuation adjustments are also required for other purposes such as establishing regulatory capital or for management and investor information. Complying with these standards requires a robust risk analytic capability and system infrastructure. Implementation is costly and proving to be both theoretically and practically challenging.

In this webinar we will investigate the best practice guidelines for implementation, and how centralising the calculations can make the process more efficient and cost effective.


  • Rhys Taylor, Director, EY
  • Jeremy Vice, Head of CVA, Unicredit
  • Steve White, CEO, Riskcare
  • Martin Engblom, Business Development Analyst, TriOptima



Latest IACPM Credit Outlook Survey Forecasts Benign Credit Spreads

But Growing Concern For Rising Credit Defaults, Especially Outside US

     New York, NY – The latest IACPM Credit Outlook Survey forecasts unchanged credit spreads over the next three months but, at the same time, also reveals concern about potentially rising credit defaults over the next twelve months, especially outside of the United States. The IACPM Credit Spread Outlook Index is 4.4, or nearly neutral in the newest reading, compared to an index value of 8.5 in the previous quarter. The IACPM Credit Default Index, however, is minus -28.0 versus negative -18.6 previously.

Survey respondents say concern is rising over potential defaults because the current economic expansion has lasted for an unusually long period, almost six years in the US. At some point, the expansion has to come to an end. For the short term, how-ever, central banks are underpinning economies globally by keeping interest rates at nearly historic lows, thus keeping credit spreads at current tight levels.

Longer term, there are certainly tensions, the Middle East, Ukraine, economic malaise in Europe, commented Som-lok Leung, Executive Director of the IACPM, but none of these are strong enough or deep enough to mark the current period as inflection point upon which portfolio managers would need to substantially change their positions.

To be sure, there are significant differences globally. The outlook for rising defaults in Europe changed from 0.0, or neutral, at the end of June to minus -22.0 in the new survey. The index for Asia moved from minus -25.0 in June to negative -40.0 this time. Australia declined from minus -17.4 in the previous survey to minus -43.5. The outlook for the US, however, remains roughly the same. The Credit Default Index for the US was negative -20.0 in the latest survey compared to minus -23.9 in the previous one.

The big question facing portfolio managers and investors in general is when will the US Federal Reserve raise interest rates, noted Mr. Leung. Economic expansion is long in the tooth. At some point, the Fed will raise rates, creating a new paradigm. Until then, however, credit conditions remain at extremely benign levels and the outlook for defaults is generally unchanged.

The credit outlook survey is conducted among members of the International Association of Credit Portfolio Managers, which is an association of credit portfolio managers at 102 financial institutions located in 17 countries in the U.S., Europe, Asia, Africa and Australia. Members include portfolio managers at many of the world’s largest commercial banks, investment banks and insurance companies, as well as a number of asset managers. Members are surveyed at the beginning of each quarter.

Survey results are calculated as diffusion indexes, which show positive and negative values ranging from 100 to minus -100, as well as no change which is in the middle of the scale and is recorded as “0.0.” Positive numbers signify an expectation for improved credit conditions, specifically fewer defaults and narrower spreads, while negative numbers indicate an expectation of deterioration with higher defaults and wider spreads.


Please click here to access a selection of aggregated survey data.

The full aggregated survey results will be published with a 6 months time lag in the members only section of our website. Please click here to access prior quarters’ survey results.


The IACPM, with 102 member institutions located in 17 countries, is a professional association dedicated to the advancement of credit portfolio management. Founded in 2001, the organization’s programs of meetings, studies, research and collaboration are designed to increase awareness of the value and function of credit portfolio management among financial markets worldwide, and to discuss and resolve issues of common interest to its members.


Webinar : Revised Regulatory Framework for NBFCs – Impact Analysis, Nov 27, 430pm IST

Over the years, the NBFC sector has become systemically important with rise in assets under management. The rising importance of NBFCs and their growing interconnectedness with banks and financial institutions as well as issues like risk management framework for the sector, regulatory gaps and arbitrages, compliance and governance issues have led to the RBI making certain regulatory changes.
In the short term, these measures would impact the profitability and asset quality parameters of the NBFCs; however, these measures will bring in more transparency and improve NBFCs structurally.
CARE Ratings invites you for a webinar on ‘Revised Regulatory Framework for NBFC – Impact Analysis’  on Thursday November 27th , 2014, at 5 pm.
Webinar will touch up on the following topics:
  • ·         Overview of the NBFC sector
  • ·         Regulatory aspects
  • ·         Performance of NBFCs
  • ·         Impact of the recent revised framework by RBI
Anuj Jain – AGM (BFSI Ratings)
Aditya Acharekar – Sr. Manager (BFSI Ratings)
Vishal Sanghavi – Sr. Manager (BFSI Ratings)

Register now 


Moody’s Teleconference Invitation: Lodha Developers Private Limited: Behind the First-Time (P) Ba3 Ratings, 26 November 2014, 130pm

Moody’s Teleconference  Lodha Developers Private Limited: Behind the First-Time (P) Ba3 Ratings   Wednesday, 26 November 2014, 13:30 India / 16:00 Hong Kong / 17:00 Tokyo
Discussion Items

·         Overview of the Indian real estate sector

·         Key factors driving Lodha’s credit profile

·         A look at how its credit profile is expected to improve by 2017

·         Comparing Lodha with Indiabulls Real Estate Limited

·         How the proposed bond structure mitigates subordination risk

·         Assessing the covenant quality of the proposed notes


Philipp Lotter, Managing Director, Corporate Finance Group

Vikas Halan, Vice President – Senior Credit Officer

Jake Avayou, Vice President, Senior Covenant Analyst

Vincent Tordo, Associate Analyst

The entire session — with prepared remarks and the Q&A — will last about one hour.

If you wish to participate, please RSVP early. Dial-in numbers will be provided.


Registration Is Required

Replay information will be provided after the teleconference.

Submit Questions in Advance

Participants are encouraged to submit questions in advance of the teleconference by
clicking here.

Related Research and Methodologies       

·         Press Release: Moody’s assigns (P) Ba3 ratings Lodha Developers, 24 November 2014

Webinar : Operational Risk Modelling: Challenges and Opportunities, Nov 25th 2014, 9pm IST

With Eduardo Canabarro, MD, Managing Director, Global Head of Risk Analytics, MORGAN STANLEY. We are delighted to invite you to the first edition of the NEW RiskMinds ‘Visions of Risk’ Webinar Series – a chance for you to engage with both new ‘live’ content and see choice catch-up sessions from our conferences – all free of course!

This Webinar will cover the following developments in operational risk modelling:

  • Data Challenges
  • Model specification, calibration and risk
  • Capital variability and instability
  • Scenarios, external data and risk indicators
  • What can we improve?

ICBI and Riskminds reserve the right to decline unqualified registrations. By registering for this event, you agree to your data being passed to the event partners for follow up. 

Eduardo Canabarro
MD, Managing Director, Global Head of Risk Analytics
View Presenter Biography

Standard & Poor’s Updates Its 2014-2016 Metals Price Assumptions

Standard & Poor’s has updated its price assumptions for metals for 2014-2016, reflecting current market conditions for each commodity. We are revising our price assumptions in accordance with our methodology. More

Credit Spreads and Default Probabilities: A Simple Model Validation Example

One of the most persistently used formulas in fixed income markets is the relationship

Credit Spread = (1 – Recovery Rate)(Default Probability)

This simple formula asserts that the credit spread on a credit default swap or bond is simply the product of the issuer’s or reference name’s default probability times one minus the recovery rate on the transaction. The persuasive belief that this formula, or at least a simple variation on it, is true has led to a wide array of models implying default probabilities from credit spreads. In the popular press, these models are frequently invoked in headlines like “ BP Swaps Put Odds of Default at 39% ,” a June 16, 2010 forecast during the Gulf Oil spill.

In this note, we ask two questions. First, what are the implications of this formula if it is true? Second, are the implications consistent with the facts? This is the essence of basic model validation.

The Implications of the Formula
The simple credit spread formula has been most often invoked in the early days of the credit default swap market. It has a number of implications if we take it literally.

  • Only two factors drive credit spreads, the default probability and the recovery rate.
  • Since the default probability and recovery rate can vary by maturity, at any point in time the formula determines the full term structure of the credit spread.
  • Since the recovery rate can only vary from 0% to 100%, in no case should the credit spread be a larger number than the default probability.

We follow Jarrow, van Deventer, and Wang’s paper “ A Robust Test of Merton’s Structural Model of Credit Risk ” in this note. We have enumerated a short list of important implications of the model. We test these implications against observable data. If the data is inconsistent with the implications of the model, we reject the model. This is an essential series of model validation procedures in many areas of risk management. We start with the third implication.

Read more 


S&P : A Parting Of The Ways In The Global Economy

A Parting Of The Ways In The Global Economy

Standard & Poor’s base-case scenario is for the global economy to continue to expand. We also expect global growth to be a bit stronger in 2015 than 2014, as higher growth in the U.S. (3% after 2.2%) and the eurozone (1.5% after 1.0%) more than offset a slight moderation of growth in China (7.1% after 7.4%) and the U.K. (2.5% after 3.1%). Unfinished business in the global economy remains, generally posing downside risks to our base-case scenario. That unfinished business relates to the residual headwinds, if not semipermanent scars, left by the global financial crisis and the Great Recession, the hybrid economic architecture of the eurozone, Japan’s valiant bid to end a secular deflation and lift its flagging real growth while repairing its sorry fiscal finances, and China’s need to rebalance growth and reform its economic system while digesting a credit and investment overhang from its state-directed growth spurt after the 2008 crisis

Could Ballooning Loss Reserves From New Accounting Rules Deflate Bank Capital Ratios?

Sweeping new rule changes for the way banks estimate credit losses in their financial reports likely will have a significant impact on banks applying International Financial Reporting Standards (IFRS) or U.S. Generally Accepted Accounting Principles (U.S. GAAP). More

Moody’s Teleconference : Chinese Automakers – Key Credit Drivers and Considerations, Nov 19, 12pm IST

Moody’s Teleconference  : Chinese Automakers – Key Credit Drivers and Considerations

Wednesday, 19 November, 2014  14:30 Hong Kong / 15:30 Tokyo / 17:30 Sydney

Discussion Items

·         Product diversity needed for China’s large and diverse market

·         Sino-foreign JVs empower Chinese makers to compete in more sophisticated market

·         Analytical adjustments allow holistic analysis of credit profiles


Gary Lau, Managing Director, Corporate Finance Group

Ivan Chung, Senior Vice President, Greater China Credit Research and Analysis

Gerwin Ho, Vice President – Senior Analyst, Corporate Finance Group (Q&A)

The entire session — with prepared remarks and the Q&A — will last about one hour.

If you wish to participate, please RSVP early. Dial-in numbers will be provided.


 Registration Is Required

Replay information will be provided after the teleconference.

Submit Questions in Advance

Participants are encouraged to submit questions in advance of the teleconference by
clicking here.

Related Teleconference

In Putonghua: Wednesday, 19 November 2014,

11:00 Beijing / Hong Kong

 Related Research and Methodologies       

Press Release: Moody’s: Partnerships and product diversity strengthen the credit quality of big Chinese automakers, 5 November 2014

·         Sector In-Depth: Partnerships and Product Diversity Strengthen the Credit Quality of Big Chinese Automakers, 4 November 2014

 A complete list of Moody’s methodologies may be found here.

Webinar : India and China Banking: Operational Realities & Credit Risk Trends – Nov 20, 5pm IST

Emerging Market Banking- India and China – Challenges and Performance

Date: Thursday November 20, 2014
Time: 6:30 am EST | 11:30 am GMT | 5:00 pm IST | 7:30 pm HKT
Duration: 60 minutes

Register here

Rising interest rates and depreciating exchange rates will create stress on the corporate balance sheets of banks and other financial institutions in emerging markets, according to the Bank for International Settlements. The financing patterns of the past few years could expose markets to further vulnerabilities going forward, as quantities and prices continue to adjust to shifts in monetary conditions, new regulations and the macroeconomic outlook.
Since mid-September, some market jitters have reappeared, as central banks in advanced economies have discussed eventually reversing quantitative easing. This shift in perceptions has resulted in an appreciation of the US dollar against a broad range of currencies, including an especially sharp depreciation in the case of some emerging market economies (EMEs).

In this webcast, our experts will focus on two emerging economic giants and the uncertainty for their bank’s ability to service its debts and obligations and how banks in India and China are responding to proposed liberalized regulations.

Participants will gain a better understanding of:

  • The trends towards liberalization- similarities and differences
  • Bank responses to changing regulation
  • Challenges and opportunities under new regulations
  • Impact of state ownership on strategy and operations
  • Anticipated operational changes under liberalized regulations
  • Comparison on Indian and Chinese bank credit risk and operating performance

Eric Kavanagh, The Bloor Group

Dr. Rajan Singenellore, Global Head of the Default Risk and Valuation Group, Bloomberg

Professor Moorad Choudhry, Dept of Mathematical Sciences, Brunel University

Dr. Michael C. S. Wong, Associate Professor of Finance, City University of Hong Kong; Chairman, CTRISKS Rating

How Big is the Pan Asia Bond Market?

How Big is the Pan Asia Bond Market?

The S&P Pan Asia Bond Index tracks the performance of the local currency bonds in the 10 Pan Asian countries. The market value tracked by the S&P Pan Asia Bond Index has expanded three fold to USD 6.7 billion since the index’s first value on Dec. 29, 2006. This rapid expansion warrant some attention as it is compared with the total size of the global debt securities, which is estimated to be over $90 trillion, according to the Bank of International Settlements.^ If we look at the market composition of the S&P Pan Asia Bond Index, which is market value- weighted, it is not surprising to see the S&P China Bond Index has a dominant share of 59% with its market value currently stood at CNY 24 trillion. The S&P South Korea Bond Index and the S&P India Bond Index came second and third, respectively. Please see Exhibit 1. Exhibit 1: Country Breakdown of the S&P Pan Asia Bond Index  In the Pan Asian bond market, while the size of government bonds has doubled to USD 4.8 trillion, the size of corporate bonds jumped 9 times to USD 1.9 trillion in the same period! In fact, the market share of the corporate bond market rose from merely 9% to 28% of the index, which represents a significant reversion from traditionally underdeveloped corporate market, see Exhibit 2. Exhibit 2: Sector Breakdown of the S&P Pan Asia Bond Index  This growth dynamic is supported by a stronger investor demand, both locally and externally. Many Pan Asian local currency bond markets are now made easier for foreign investors to access, particular through the use of exchange traded products. The regulatory framework also becomes more welcoming, for example, the expansion of Renminbi Qualified Foreign Institutional Investor (“RQFII”) quota in China. Underpinned by the robust economic growth, the Pan Asia bond market has historically been attracting steady inflows. ^Source: Data as of December, 2013.

Moodys Webinar-On-Demand: CRE Credit Risk Solutions and Best Practices

Institutions are faced with increasing requirements to quantify risk in their commercial real estate (CRE) portfolios. These requirements come from shareholders seeking to maximize their risk adjusted return and from regulators requiring adequate capital reserve levels. Developing accurate default and recovery models for CRE mortgage portfolios is a significant challenge due to data limitations and constraints on internal resources.

Moody’s Analytics CRE credit risk experts, Christian Henkel and Sumit Grover, discuss the following topics:

Overview of CRE credit risk management challengesData management and credit risk solutions that address the needs of CRE risk managersCRE stress testing model and approach

Register here

Covenant-Lite Issuance Casts A Cloud Over Future Default Levels

With the current hyper-liquidity in the capital markets, largely due to central bank “cheap-money” policies, and investors’ unquenchable thirst for yield, the issuance of covenant-lite first-lien loans, which lack financial maintenance covenants, has boomed in 2013 and thus far in 2014. Standard & Poor’s Ratings Services is concerned that the sizable amount of first-lien covenant-lite loans now outstanding, particularly those rated in the ‘B’ category, along with rapid growth in traditional ‘B’ first-lien loan issuance, could result in elevated refinancing risk and/or a spike in defaults in the event of a future liquidity crisis. (Watch the related CreditMatters TV segment titled, “Booming ‘B’-Rated Covenant-Lite Issuance Heightens Restructuring And Default Risk,” dated July 15, 2014.)

Ind-Ra: Restructured Assets May Shoot Up by INR600bn-INR1,000bn in Next Five Months

Ind-Ra: Restructured Assets May Shoot Up by INR600bn-INR1,000bn in Next Five Months

Link to Ind-Ra’s report: Restructured Assets May Surge on Revised RBI Guidelines

Ind-Ra-Mumbai-4 November 2014: Around one in four of the 500 largest corporate borrowers may formally be tagged as financially distressed (identified as NPA, CDR or restructured) by end-FY15, estimates India Ratings & Research (Ind-Ra). The cumulative impact may be an incremental INR600bn-INR1,000bn of restructured assets in the banking system in the next five months. These 500 corporates had a balance sheet domestic currency debt of INR28,760bn at FYE14.

The agency expects banks to consider taking a decisive action on their corporate accounts, which may have been servicing their debt with some delay, as the process of the Reserve Bank of India’s calibrated withdrawal of regulatory forbearance peaks up speed from 1 April 2015. Within the top 500 corporate borrowers, 83 corporates, with outstanding domestic currency debt of INR2,431bn at FYE14), have not been publicly tagged as financially distressed. This is despite the companies having severely stretch credit metrics and no strong parent.

If some of these corporates are unable to generate significant cash flow or infuse significant equity in the near term, they may be identified by their lenders for restructuring pursuant to RBI guidelines issued during 21 October 2014 and 30 May 2013.

Research Paper : Are Unconstrained Bond Funds a Substitute for Core Bond?

Proponents of unconstrained bond funds suggest that their flexibility in decision making and broader universe (1) helps insulate investors from growing interest rate risk; (2) allows allocation decisions to be made based on the relative attractiveness of assets rather than benchmark mandates; and (3) creates the potential for additional uncorrelated sources of alpha. In practice, it appears that (1) core bond funds continue to play an important role in portfolios that rising interest rates would not negate, including acting as a diversifier of equity risk, stabilizing a portfolio’s value in falling equity markets; and (2) that while in principle unconstrained bond funds are capable of playing the role that core bonds serve, in practice it appears the universe of managers employing unconstrained strategies have substituted credit risk for interest rate risk.

Read full paper here

ASEAN Top Companies: Rising Debt Shapes Credit Risk More Than Business Trends

ASEAN Top Companies: Rising Debt Shapes Credit Risk More Than Business Trends

The Association of Southeast Asian Nations (ASEAN) could be moving toward greater economic importance and relevance as it pushes ahead on its planned path of economic convergence by 2015. We recognize this prospect through its inaugural ASEAN corporate survey. Our survey assesses the credit characteristics of 100 of ASEAN’s largest corporate entities–companies that have the largest market capitalization and those that we view as most representative of major industrial sectors in the region. The survey highlights the major credit trends for these companies by analyzing their business and financial risk profiles, and any country or sectoral developments. Our survey indicates that companies’ business risk profiles display significant similarity across countries and sectors. We expect the business risk profiles to remain stable over the next year, given good economic growth prospects and demand. Balance sheet strategies and leverage tolerance, however, vary greatly

WEBINAR : Why smart beta is here to stay , 11 Nov, 2014, 730am IST

Why smart beta is here to stay

Tuesday, 11 November 2014
10:00 am Singapore / Hong Kong time, 1:00 pm Melbourne / Sydney time

Register Here

The roundtable will feature the latest academic research and draw on the industry leaders who have pioneered popular smart beta strategies.

Key discussion points (see details here):

Why do smart beta lead to higher information ratio?
How can you evaluate smart beta strategies?
What are the key considerations in designing the portfolio: from multi-manager to multi-factor?
When would be the “timing” in adopting smart beta approaches?
Why smart beta is here to stay
Tuesday, 11 November 2014
10:00 am Singapore / Hong Kong time (GMT+8)
1:00 pm Melbourne / Sydney time (GMT+11)
Jame DiBiasio, Executive editor, Haymarket Media Ltd
Chris Tse, CFA, Director, Asia
FTSE Group
Dr. Feifei Li, Director, Head of product research & management
Research Affiliates, LLC
Ben Garland, CFA, Director
Paul Colwell, CFA, Senior investment consultant
Chair of Asia Portfolio Construction Group
Towers Watson
Register Here