EBA欧洲银行-Mapping-Report-EJR-28JC-2017-3229_24页_672kb

Summary of Egan-Jones Ratings Company's Credit Assessments Mapping

Core Content

This document outlines the mapping of Egan-Jones Ratings Company (EJR) credit assessments under the Standardised Approach (SA) as per the Commission's Implementing Regulation (EU) 2016/1799. The mapping aligns EJR's rating categories with a regulatory credit quality step (CQS) scale used for prudential purposes, ensuring consistency in risk assessment for financial institutions.

Main Rating Scales and Categories

EJR provides both long-term and short-term credit ratings, which are mapped to the CQS scale for use in the SA. The long-term credit rating scale includes the following categories:

• AAA
• AA
• A
• BBB
• BB
• B
• CCC
• CC
• C
• D

The short-term credit rating scale includes:

• A-1+
• A-1
• A-2
• A-3
• B
• C
• D

Key Mapping Results

Long-Term Credit Rating Scale Mapping

The mapping was derived using quantitative factors, such as long-run and short-run default rates, and qualitative factors for categories with insufficient data. The long-run default rate was calculated as the weighted average of the most recent 20 short-run default rates, with adjustments made for the high proportion of bankruptcy-related defaults (estimated to be over 90%).

Short-Term Credit Rating Scale Mapping

The short-term ratings are mapped based on the internal relationship between long-term and short-term ratings, as specified in Figure 5 of Appendix 1. The mapping is determined by the most frequent CQS assigned to the related long-term rating categories, with the most conservative CQS selected in case of a tie.

The short-term ratings are mapped to CQS 1 to 6, with CQS 4 to 6 assigned a 150% risk weight under Article 131 of the CRR.

Methodology

• The quantitative methodology involves comparing the long-run and short-run default rates of each rating category with benchmarks from the Implementing Regulation.
• Qualitative factors are used to challenge the initial mapping, particularly in categories with limited quantitative data.
• The mapping process is conducted in two stages: first based on quantitative factors, then reviewed with qualitative factors.
• Short-run default rates are compared with monitoring and trigger benchmarks to assess deviations and ensure prudential consistency.
• Adjustments are made for the definition of default, as EJR's default definition is primarily based on bankruptcy events, which are considered to be over 90% of all defaults.

Regulatory Context

• The mapping is not a comparison of rating methodologies between EJR and other ECAIs, but rather a correspondence between EJR's rating categories and a regulatory scale for prudential purposes.
• The mapping aims to balance prudential concerns with market competition, especially for newer ECAIs with limited quantitative data.
• The mapping is specified in Annex III of the revised draft ITS and is aligned with the CQS scale under Article 136(1) and (3) of the CRR.

Conclusion

The mapping of EJR's credit assessments ensures that financial institutions can apply a consistent and prudential risk weighting under the Standardised Approach. The process considers both quantitative and qualitative factors, with the latter playing a more significant role where data is insufficient. The final mapping aligns EJR's rating categories with the regulatory CQS scale, reinforcing the consistency and reliability of credit risk assessments in the European Union.