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Rating Systems: A Dual Track for Screening and Monitoring

In: Credit Rating and Bank-Firm Relationships

Author

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  • Michele Modina

    (Università degli Studi del Molise)

Abstract

The information needed in order to estimate the value of default probability is elaborated in a different manner (statistical-quantitative approach vs. judgmental approach), noting, in this manner, the segment of clientele considered each time. For the evaluation of retail clientele, the use of automatic systems prevails: each piece of available information has a certain weight based on a statistical model. The significance of the qualitative information, in order to estimate the default, is gathered by associating it to a numerical value to insert in the statistical models. The judgement obtained can be subject to opportune modifications by expert analysts, if it is not considered suitable in representing the level of risk of the counterpart. This methodology is appropriate for segments of clientele with insignificant income margins. On the contrary, in segments of clientele considered more important in terms of the applicant’s dimensions, the reliability of the statistical techniques tends to decrease due to the different characteristics of the counterparts and, for this reason, it is necessary to accompany the statistical judgement with an interpretation by expert analysts in the credit sector.

Suggested Citation

  • Michele Modina, 2015. "Rating Systems: A Dual Track for Screening and Monitoring," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Credit Rating and Bank-Firm Relationships, chapter 5, pages 84-94, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-1-137-49622-5_6
    DOI: 10.1057/9781137496225_6
    as

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