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Summary of Banque de France's Credit Assessments Mapping under the Standardised Approach

Core Content

This report outlines the mapping of Banque de France (BdF) credit assessments under the Standardised Approach (SA), as per the methodology specified in the Commission's Implementing Regulation (EU) 2016/1799. The mapping is intended to align BdF's credit rating categories with a prudential credit quality step (CQS) scale, rather than a direct comparison of rating methodologies. The mapping process considers both quantitative and qualitative factors, with a focus on default rates and the stability of credit assessments.

Main Points

• Mapping Purpose: The mapping is not a comparison of rating methodologies but a prudential alignment of BdF's credit ratings with a regulatory CQS scale.
• Regulatory Framework: The mapping is based on the Implementing Regulation (EU) 2016/1799, which outlines the technical standards for mapping ECAIs' credit assessments under the CRR.
• BdF Overview: BdF is a national credit rating agency, not registered with ESMA, but eligible as an ECAI since 2007. It provides long-term issuer ratings and operates under centralized policies in France.
• Rating Scales: BdF uses a Global long-term issuer credit ratings scale with 11 categories, ranging from 3++ (excellent) to P (failure). This scale was introduced in 2004 and has more detailed categories than the previous scale.
• Mapping Methodology:
  • Quantitative Factors: Default rates (short and long run) are calculated for most rating categories, with the exception of 3++ to 4+ due to insufficient data.
  • Qualitative Factors: Used to challenge quantitative results, especially in rating categories with limited data.
  • Benchmarks: The mapping is based on benchmark intervals defined in the ITS, which guide the assignment of CQS.

Key Information

Credit Assessment Mapping Table

Rationale for Mapping

• Quantitative Factors:
  • For rating categories with sufficient data (excluding 3++ to 4+), default rates are compared with benchmark intervals.
  • For 3++ to 4+, a proxy for long-run default rates is used due to insufficient data.
  • Short-run default rates are compared with monitoring and trigger levels to assess stability and deviation.
• Qualitative Factors:
  • These are especially important in rating categories with limited quantitative data.
  • The meaning and relative position of the rating categories are used to support the mapping.
• Default Definition:
  • BdF uses two concepts: "failure" (based on legal proceedings) and "default" (based on payment incidents).
  • "Failure" is associated with a P rating, while "default" is associated with ratings 9 and 8.
  • The default rate is always greater than or equal to the failure rate.
  • The default definition is based on trade bill payment incidents and is more comprehensive than the legal failure definition.

Final Mapping Considerations

• The short and long run default rates for most categories support the initial mapping, except for rating category 3, where the proximity to the lower bound of CQS 3 suggests a more conservative approach.
• The JC of the ESAs considers that rating category 3 may be mapped to CQS 3 due to the lack of conclusive quantitative data.
• Categories 7 and P, which lack default rate data, are mapped to CQS 6 based on their meaning and the ITS benchmarks.
• The mapping is subject to updates if more quantitative data becomes available.

Conclusion

The mapping of BdF's credit assessments is a comprehensive process that balances prudential concerns with market realities, particularly for newer ECAIs. It is based on a combination of quantitative and qualitative analysis, ensuring that the credit quality steps assigned are appropriate and reflect the actual risk levels of the rated entities. The final mapping aligns with the regulatory framework and the specific characteristics of BdF's rating scale, providing a structured approach to credit risk assessment under the Standardised Approach.