The effects of international off-site surveillance on bank rating changes

Abstract

This article explores the determinants for off-site surveillance of short and long-term bank rating changes for rated banks in Asia, and the differences between them. An ordered logit model reveals that the CAMEL criteria for asset quality and capital adequacy and other financial variables such as asset size and mergers and acquisitions (M&A) play an important role that influences both the short-term and long-term bank ratings. Notably, it is found that higher capital to loan ratio and greater liquid asset ratio are likely to improve the probability of long-term creditworthiness, while higher impaired loan ratios are less likely to improve the short-term bank ratings. Results of the marginal effect suggest that the dividable scale helps to improve long-term creditworthiness through cross-selling tactics, synergy gains, and a better capability for fund raising.