DBRS Releases its Updated Global Methodology for Rating Banks and Banking Organisations

DBRS has today released the 2017 update of its “Global Methodology for Rating Banks and Banking Organisations” (the GBM). This update has several important changes from the 2016 edition, but no rating changes are anticipated from its adoption. While some changes have been made to certain exhibits for clarification, no material changes were made to this version as a result of the comments received during the Request for Comment period.

Highlights of this updated bank methodology:
• Single document now includes three related banking Criteria
• Enhanced bank methodology grids
• Introduction of a scorecard
• Support Assessment update
• Framework for rating full range of bank obligations presented

To facilitate ease of use, this update of the GBM incorporates three separate criteria into a single document. In this update, the building block approach to our analysis of a bank’s fundamentals remains central, but the grids that drive this analysis have been enhanced. A scorecard is being introduced to improve consistency both across jurisdictions and over time. Greater clarity is provided on our approach to the assessment of both systemic support and internal support within banking organisations. This update also provides a framework that addresses the ratings of the full range of bank obligations covering senior debt, critical obligations and bank capital securities, in a regulatory environment that continues to evolve.

In this update, the core approach to assessing a bank’s intrinsic strength using our five building blocks remains unchanged, but various refinements are introduced to the grids. The range of the assessments by building block has also been extended to include “Very Weak “, and now comprises: “Very Strong”, “Strong”, “Good”, “Moderate”, “Weak” and “Very Weak”. The grids reflect qualitative as well as quantitative measures and contain forward looking views, including the impact of the operating environment on a bank’s fundamentals. We intend to provide more transparency through the disclosure of the building block letter grades for individual banks by the end of June.

As an additional analytical tool, this update of the GBM introduces a scorecard. To assess a bank’s strength across the five building blocks, the scorecard uses one to three metrics for each building block to derive an overall score that can be compared to the results of the more detailed analysis in the grids. Metrics were selected that can be generated for individual banks across different bank types and different jurisdictions. This straightforward scorecard provides a means to broadly assess the consistency of our ratings approach across jurisdictions and over time. Initially, disclosure of the scorecard results will be limited to general analysis, rather than individual bank details.

Support assessments are an important consideration in the analysis of banking organisations and their subsidiaries. The separate Criteria on Support Assessments is now incorporated in Section IV of the GBM and this update provides more clarity on how we approach both systemic support and internal support within banking organisations. Given the increased role of bank holding companies (BHCs) in some countries, this update also provides more detail on our approach to ratings for this form of banking organization. It also addresses the assessment of intermediate BHCs. Also addressed in more detail in this section is our approach to rating members of FI Associations, including associations of cooperatives, credit unions, public savings banks and other similar institutions, and central entities that are part of such FI Associations.

This update of the GBM includes a framework for rating the full range of bank obligations from critical obligations to bank capital securities. In Section V, the GBM incorporates two separate criteria that address these types of obligations. Importantly, this framework facilitates the rating of bank senior obligations in an environment that continues to evolve with the introduction of “bail-in” legislation and the development of resolution regimes. It also addresses new types of debt, such as senior nonpreferred debt.

Notes:
DBRS criteria and methodologies are publicly available on its website www.dbrs.com under Methodologies.

For more information on this methodology or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.