Bank_Scorecard_Template.pdf

EXAMPLE OF OPIC’s BANK SCORECARD

1. Summary Tab

TRUE

TRUE

Banking Institutions

Quantitative Score

Qualitative Score

Combined Rating

Final Project Score

Rating

Systemic Importance

Notches Moved

Guarantor Analysis

Notches Moved

Country Risk Analysis

Notches Moved

Final Rating

Final Rating

Comment

Override Rating

Override Rating

Override Reason

Comment

Assessment Date

(MM/DD/YYYY)

Approved by (Officer Name)

Maturity Date

(MM/DD/YYYY)

Total Assets ($ in 000s)

Project Description

PMD Officer Name

Scoring Officer Name

Outstanding Amount Date

(MM/DD/YYYY)

Summary

Financial Information Date

(MM/DD/YYYY)

Project Name

Loan Number

Version Number V.040517

Finance Officer Name

Commitment Amount ($ in 000s)

Country

Outstanding Amount ($ in 000s)

Restructured

Restructured Date

(MM/DD/YYYY)

Number of Life of Loan Guarantors

Quantitative Score

Watch Flag (Please Elaborate in Comment Box Below)

N/A

N/A

Qualitative Score

Bank PD Scorecard

Clarify Text -

2. Quantitative Tab

Formula Clarify Text Comments/Calculations

Profitability

Net Income / Total Assets

This ratio measures the bank's profitability relative to its assets. It is an indicator of management's efficiency in using its assets to generate earnings. Net income takes all expenses into account including provisions for loan losses and taxes. The ratio should be calculated using annual (or last 12 months) data.

Liquidity

(Cash & Cash Equivalents + Marketable Securities) / Deposits

This ratio measures the extent to which a bank can cover its core deposits using liquid assets in the event of a run on the bank. The higher the percentage, the less vulnerable a bank is to sudden withdrawals by a large number of depositors. Liquid Assets include cash, cash equivalents, and marketable securities, but not derivatives or restricted cash accounts. Deposits include customer deposits, bank deposits, and repos.

Formula Clarify Text

Capital Structure/Adequacy

Tangible Net Worth / Total Assets

This ratio measures a bank's capital adequacy. Equity serves as a capital cushion to absorb unexpected losses before a bank becomes insolvent. A high ratio indicates that the bank is well capitalized as it can absorb larger unexpected losses. Tangible Net Worth includes common stock, equity reserves, retained earnings, preferred shares, but not intangibles or subordinated debt.

Liquidity

Total Loans / Deposits

This ratio measures the amount of loans a bank has outstanding relative to deposits.

Generally, loans are long-term investments whereas deposits are short-term sources of funding that can be withdrawn instantly. A higher ratio indicates that the bank has larger illiquid assets relative to short-term sources of funding, and thus lower liquidity. Deposits include customer deposits, bank deposits, and repos.

Profitability

(Income Before Taxes and Loan Loss Provisions) / [(Current Year Total

Assets + Previous Year Total Assets) / 2]

This ratio measures a bank's core profitability (i.e. income before taxes and loan loss provisions) relative to assets. It is an indicator of management's efficiency in using its assets to generate earnings. The ratio should be calculated using annual (or last 12 months) data.

Problem Loans / (Income Before Taxes and Loan Loss Provisions)

This ratio measures a bank's ability to absorb potential losses using pre-provision profits. A lower problem loans to pre-provision profitability ratio indicates that the bank generates enough earnings to cover potential losses. Problem loans include nonaccrual loans plus accruing loans that are past due 90 days or more.

Asset Quality

Loan Loss Reserves / Problem Loans

This ratio measures the bank's ability to withstand potential losses (problem loans) using loan loss reserves. A high ratio indicates a higher ability to absorb potential losses. Problem loans include nonaccrual loans plus accruing loans that are past due 90 days or more.

Problem Loans / Total Loans This ratio helps gauge potential future credit losses at banks. A high ratio is an indicator of a potentially poor quality loan portfolio. Problem loans include nonaccrual loans plus accruing loans that are past due 90 days or more.

Problem Loans / (Tangible Net Worth + Loan Loss Reserves)

This ratio measures the percentage of potential losses (problem loans) relative to the total amount of protection available to absorb expected and unexpected losses (i.e. loan loss reserves and common equity). A high ratio indicates an inadequate amount of cushion available to absorb losses. Problem loans include nonaccrual loans plus accruing loans that are past due 90 days or more. Tangible Net Worth includes common stock, equity reserves, retained earnings, preferred shares, but not intangibles or subordinated debt.

Net Loan Losses / [(Current Year Total Loans + Previous Year Total

Loans) / 2]

This ratio measures the total credit loss of a loan portfolio over a period of time. A high ratio indicates a poor quality loan portfolio. It is calculated by dividing the total loans written off during a period by the average of the loans outstanding at the end of the current period and the end of the previous period. The ratio should be calculated using annual (or last 12 months) data.

Extraordinary Gains or Losses

Extraordinary items result from events that qualify as both 'infrequent' and 'unusual.' Whether or not an event that resulted in extraordinary gains or losses is 'infrequent' depends on whether or not it has occurred in the past. The frequency of its occurrence (or lack of it) in the past will indicate the likelihood of its recurrence in the foreseeable future. Whether or not such an event is 'unusual' requires a judgment call as it depends on a number factors that include industry characteristics and operating environment (including geographic location and government regulations). Note: Gains and losses from currency translation and exchange cannot be considered 'extraordinary' even if they resulted from a sovereign's action such as devaluation or revaluation and even if such sovereign action can be considered to be both 'infrequent' and 'unusual.'

Net Income

Total Related Party Loans / Tangible Net Worth

A related party is an entity in the same group, a party related through joint venture, or an entity controlled by an individual with significant influence over the reporting entity. Related parties also include individuals with control or significant influence over the reporting entity and their close family members. Tangible Net Worth includes common stock, equity reserves, retained earnings, preferred shares, but not intangibles or subordinated debt.

(Tier 1 + Tier 2 Capital) / Total Assets

This ratio measures a bank's total capital, which serves as a cushion to absorb unexpected losses before a bank becomes insolvent. The numerator generally includes Tier 1 Capital (Common Stock and Disclosed Reserves or Retained Earnings) + Tier 2 Capital (Undisclosed Reserves, Revaluation Reserves, General Provisions, Hybrid Instruments that are close to equity in nature, and Subordinated Term Debt with a term over 5 years).

Comment

Tier 1 + Tier 2 Capital Ratio

Other Quantitative Data

Extraordinary Gains or Losses ('000)

Total Related Party Loans / Tangible Net Worth

Net Income ('000)

Charge-Off Ratio

Tangible Net Worth to Assets

Problem Loans to Total Loans

Loan Loss Reserves to Problem Loans

Problem Loans to Pre- Provision Profitability

Pre-Provision Profitability to Average Assets

Problem Loans to Tangible Net Worth plus Loan Loss Reserves

Total Loans to Deposits

Quantitative Factors - Statistical Factor Factor Value

Net Income to Assets

Liquid Assets to Deposits

Quantitative Factors - Expert Judgment Factor Factor Value t - Qualitative

3. Qualitative Tab

Factor Factor Response Clarify Text Comments

Management and Organizational Structure

Management Quality

This factor measures the relative experience and overall expertise of the management team by assessing management's track record of success, the complexity of the institution, and key man risk. Management success can be evaluated based on the institution's profitability. A track record of success is generally characterized by a consistent track record of profitability, with the exception of an external event that negatively affects industry-wide profitability. A global institution is generally larger and more complex in its organization structure as it operates in multiple geographies and has multiple businesses in addition to lending, such as investment banking, proprietary trading, wealth management, etc. Conversely, a local institution is not as complex as it does not operate in multiple regions, and primarily has lending businesses.

Financial Statement Quality, Completeness and Transparency

Timely financial statements using standard accounting practices (e.g. GAAP, IFRS) and audited by an independent globally recognized accounting firm are essential to appropriately monitor the financial situation of a bank. Moreover, they enable easy comparison of financials between banks. Significant adjustments made to annual statements from quarterly statements serve as a red flag indicating high risk due to inaccurate reporting.

Governance & Compliance

This factor measures governance and compliance by assessing the presence of an independent board, and the strength of internal control and internal audit policies, which help minimize non-compliance of regulatory guidance. Having strong internal control policies for accounting (such as regular internal audit reports to audit committee), compliance, risk management, and operations help prevent regulatory penalties, such as constraints on activities or fees, relative to those imposed on other firms in that jurisdiction. Board members must be independent to act as a counterweight to management and major shareholders in order to have a strong governance structure.

Franchise Positioning

Market Position and Sustainability Market share and brand recognition for a bank can provide long-term sustainability and the ability to maintain competitive advantage over peers in the industry.

Revenue Stream Diversification This factor measures the degree of business line and product diversification in a bank. A bank with a monoline business can be vulnerable to potential changes in market dynamics.

Asset Concentration

This factor assesses the level of asset concentration in segments, such as commercial, real estate, consumer, residential, etc., along with the level of concentration in various industries. An asset base with high concentration in one or two segments is highly exposed to changes in the market that affect those segments.

Risk Positioning

Risk Management

This factor measures the quality of risk management practices at a bank.

A good risk management framework includes a supervisory board that reviews senior executive practices, a highly experienced risk management executive team (>15 years), a risk management department that reviews business units, an independent and well staffed risk function, a robust enterprise risk management (ERM) framework, a strong operational risk capability, and an ability to manage foreign exchange risk.

An average risk management framework includes a supervisory board that reviews senior executive practices, an experienced risk management executive team (10 - 15 years), a risk management department that reviews business units, an adequately staffed risk function, a basic ERM framework, an adequate operational risk capability, and an ability to manage foreign exchange risk.

A poor risk management framework lacks an experienced risk management executive team (i.e. <10 years of experience), a supervisory board that reviews senior executive practices, an independent risk function, a structured ERM framework, a structured operational risk capability, and an ability to manage foreign exchange risk.

Liquidity Management This factor measures the bank's ability to manage liquidity by analyzing its net funding at every point over a 12 month horizon, and liquidity planning based on company specific and market related crises.

Access to Alternative Sources of Funding

Access to alternative sources of funding is essential for banks to mitigate liquidity risk. Having access to public issuances (such as stocks, bonds, syndicated loans, etc.) provides banks with a diverse, active, and liquid market to raise additional funds as required. Conversely, relying on alternative funding sources other than public issuances (such as bank loans, inter-developmental agencies, sponsors, etc.) reflects weaker access to funding as these sources are generally not as diverse or liquid.

Operating Environment

Regulatory Environment

Please refer to the ICRAS sub-indicator, Regulatory Environment and Bank Supervision (part of the Non- Sovereign Risk Rating schedule). Regulations overseeing banks ensure the integrity of the financial system by subjecting them to certain requirements, restrictions and guidelines. Regulatory strength is characterized by the independence of the regulatory body along with the ability of the regulators to enforce restrictions and guidelines on banks. Generally, a regulatory environment that has an independent regulator, a regulatory system that has matured over time, and that has consistently demonstrated enforceability of restrictions is considered to be a strong regulatory environment.

Support

Systemic Importance

In times of financial distress, a bank may receive support from the government based on the government's willingness and ability to do so. A government’s willingness is generally based on the bank's systemic importance in the country's economy, which can be evaluated by assessing the size of the bank relative to the size of the country's banking sector, the size of the banking sector relative to the size of the economy, the government’s stake in the bank (generally, a government is more willing to provide support to a national bank), and evidence of past support provided to the bank. External rating agency reports can be referenced to determine a bank's systemic importance. A government's ability to provide support is dependent on their overall economic and institutional strength. Generally, countries with an ICRAS D- or worse sovereign rating would likely be constrained in their ability to provide support in a time of financial stress.

Comment

Qualitative Factors

Qualitative

4. Guarantor Tab

Factor Factor Response Clarify Text

Guarantee Amount ($ in 000s)

Guarantor Type

Personal Guarantee

Credit Score

Adj Net Worth to Total Liabilities

Cash and Equivalents to Total Debt

Debt to Income

Income Verification

Personal Financial Statement Type

Legal Considerations

Corporate Guarantee

Credit Rating (Moody's / S&P)

Total Liabilities to TNW

Cash and Equivalents to Total Debt

Financial Statement Type

Legal Considerations

Access to Capital

Government Guarantee

Government Entity

Internal Country Rating

Comment

Life of Loan Guarantor 1

If the loan is guaranteed by a personal guarantor, qualitative factors such as credit score, adjusted net worth to total liabilities, cash and equivalents to total debt, debt to income, income verification, personal financial statement type, and legal considerations are evaluated to determine the guarantor’s creditworthiness and ability to meet obligations. For financial statement type, audited refers to financial statements that has been audited by a qualified third party (providing high assurance on statement quality), reviewed refers to financial statements that has been reviewed by a qualified third party (providing limited assurance on statement quality), and compiled refers to financial statements being assembled by a qualified third party (not providing assurance on statement quality). Select "N/A" if information is not available.

If the loan is guaranteed by a corporate guarantor, qualitative factors such as credit ratings, total liabilities to total net worth, cash and equivalents to debt, financial statement type, legal considerations, and access to capital are evaluated to determine the guarantor’s creditworthiness and ability to meet obligations. For financial statement type, audited refers to financial statements that has been audited by a qualified third party (providing high assurance on statement quality), reviewed refers to financial statements that has been reviewed by a qualified third party (providing limited assurance on statement quality), and compiled refers to financial statements being assembled by a qualified third party (not providing assurance on statement quality). Select "N/A" if information is not available.

If the loan is guaranteed by a government guarantor, qualitative factors such as the type of government entity and the internal country rating are evaluated to determine the guarantor’s creditworthiness and ability to meet obligations. Select "N/A" if information is not available.

This section evaluates guarantors that guarantee principal and interest to the lender if the borrower is unable to meet their obligation. This is done by evaluating the amount guaranteed (in comparison to the loan amount), and the guarantor’s willingness and ability to meet these obligations.

A guarantee amount and a guarantor type needs to be specified to evaluate the guarantor (loans with multiple guarantors can be evaluated by using the different guarantor tabs). On selecting the guarantor type, the factors evaluating the corresponding guarantors should be populated.

5. Country Risk Tab

Country

Factor Notch Movement Clarify Text

OPIC Internal Sovereign Rating

N/A

Internal Rating Date

Moody's Actual Rating

S&P Actual Rating

Fitch Actual Rating

Comment

Country Risk

Factor Response

The country risk section evaluates the credit risk associated with U.S. credit assistance to foreign countries using the OPIC's internal rating, which evaluates economic, political, and social variables in a country. Along with the OPIC's rating, a rating agency rating for the country should also be populated to determine if OPIC's rating is in line with rating agencies. This is especially beneficial if the OPIC rating for a country is stale. OPIC's rating serves as the main driver of the country risk section, whereas the rating agency ratings serve as indicators for further analysis of country risk. For borrowers with exposures in more than one country, an exposure weighted average OPIC rating should be used.

In cases where a rating agency rating is not in line with the OPIC rating (i.e.

more than one notch difference when comparing theOPIC equivalent rating agency ratings), the corresponding blue boxes will prompt “Review Required”, indicating further analysis of the country is required to determine its risk. The Officer should consult with the Senior Economist/OIP to determine whether the current level of country risk warrants an override. When appropriate, the Senior Economist should enter an override in the override rating box on the Summary tab and select "Sr Economist Country Risk Assessment" from the Override Reasons. A brief description of the override can also be added to the comment section to further describe the reasoning behind the override.

In cases where all rating agency ratings are in line with OPIC ratings (i.e.

within one notch difference when comparing to OPIC equivalent rating agency ratings), the corresponding blue boxes will prompt “No Review Required”, indicating no further analysis of the country is required.

6. Collateral Tab

Factor Factor Response Clarify Text

Debt Structure Senior

Collateral Unsecured

LGD Category Bank Senior Unsecured

Loss Given Default Rating 7

Loss Given Default % 65%

Loss Given Default % Override

Comment

While a loan may be secured, the Officer may deem the collateral of so little value or with such limited enforceability that the loan should be considered unsecured. If this is the case, please score as unsecured and explain in the comment box.

Loss Given Default Factors

Quantitative Summary Qualitative Clarify Text - QuantitativeCountry RiskGuarantor 1 Clarify Text -

Qualitative Guarantor 2 Guarantor 3

Bank Scorecard