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Emerging Market Bank Ratings 1997: Rating good and bad banks

Taiwan's Shanghai Commercial & Savings Bank is an unknown name in global finance. But this private-sector bank is very special. It gets a top ααα in Euromoney's new emerging market bank (Emba) ratings, covering 450 lesser-known banks. Pakistan's state-owned United Bank came bottom. The ratings go where others have feared to tread. Brian Caplen explains their use as a vital tool for counterparty risk.

Suddenly, the world is awash with banks that most investors and counterparties have never heard of. Hailing from emerging markets, these banks could be tomorrow's global players or they could be future BCCIs. Evaluating them is a nightmare. Data quality is poor, accounting practices vary between countries and many new banks do not have international credit ratings. What can investors and potential counterparties do to avoid disaster?

The answer is the Euromoneyemerging market bank (Emba) rating, which is a key starting point for deeper analysis of emerging market banks. Using a specially devised mathematical formula, the rating gives a snapshot guide to good and bad banks. The result is a unique rating of more than 450 banks according to their creditworthiness. More than half these banks have no international ratings and the Euromoneysurvey is their first exposure in this area.

To help counterparties interpret the rating, banks are assigned a EuromoneyEmba rating class from triple alpha (*** - the highest, through ** and *), followed by middle-range betas (ßßß,ßß,ß) and lower-range gammas (***,** and *).

The results are fascinating, with a host of previously unrated banks that are little known internationally rising to the top of the top 50 overall and of the country lists.

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