Country Credit Research Articles

A new approach to K-nearest neighbors distance metrics on sovereign country credit rating

This study introduces feature importance K-nearest neighbors (FIKNN), an innovative adaptation of the K-nearest neighbors (KNN) algorithm tailored for classifying sovereign country credit ratings. The primary objective is to enhance KNN's predictive accuracy by integrating a feature importance mechanism derived from the random forest algorithm, which prioritizes significant features and reduces the impact of less relevant ones, refining the distance computation within KNN. Utilizing a comprehensive dataset of sovereign credit ratings, the performance of FIKNN was assessed against traditional KNN using various feature sets and bootstrap samples. The FIKNN model consistently outperformed the standard KNN by approximately 1% in classification accuracy, attributed to the weighted distance metric adjusting feature influence based on importance. Key findings indicate that FIKNN effectively manages datasets with varying feature relevance and demonstrates a positive correlation between feature diversity and model performance. Future research will explore other distance metrics and refine the feature importance weighting mechanism to broaden FIKNN's applicability in diverse predictive tasks.

The Impact of Country Credit Risk Management on the Egyptian Commercial Banks’ Performance - The Moderating Role of Country Liquidity Risk Management

The Impact of Country Credit Risk Management on the Egyptian Commercial Banks’ Performance - The Moderating Role of Country Liquidity Risk Management

The Importance of Social Capital in Promoting Financial Inclusion: An International Perspective

This paper quantitatively explores the significance of social capital in enhancing international financial inclusion, with a specific focus on its usage dimension, represented by formal credit coverage. Through panel FGLS (Feasible Generalized Least Squares) and PCSE (Panel Corrected Standard Errors) analysis of a sample comprised of 24 countries for the period 2006 – 2021 and utilizing data obtained from diverse sources, it demonstrates that a country's credit coverage is influenced by both informal and formal social capital while controlling by factors such as access channels to financial products, measures to address asymmetric information and educational levels. The results underscore that, while financial inclusion is promoted through internationally accepted standards, its effectiveness is closely intertwined with the social context of implementation. Furthermore, formal institutions play a crucial role in shaping financial inclusion by fostering innovation, entrepreneurship, and technological advancement, while attitudes to risk and planning time horizons also significantly impact this dynamic. Notably, nations embracing a pragmatic outlook tend to have more viable access to bank loans, whereas risk aversion impedes economic actors´ propensity to engage in credit agreements, even when accessible.

Revisiting distance metrics in k-nearest neighbors algorithms: Implications for sovereign country credit rating assessments

The k-nearest neighbors (k-NN) algorithm, a fundamental machine learning technique, typically employs the Euclidean distance metric for proximity-based data classification. This research focuses on the feature importance infused k-NN model, an advanced form of k-NN. Diverging from traditional algorithm uniform weighted Euclidean distance, feature importance infused k-NN introduces a specialized distance weighting system. This system emphasizes critical features while reducing the impact of lesser ones, thereby enhancing classification accuracy. Empirical studies indicate a 1.7% average accuracy improvement with proposed model over conventional model, attributed to its effective handling of feature importance in distance calculations. Notably, a significant positive correlation was observed between the disparity in feature importance levels and the model's accuracy, highlighting proposed model?s proficiency in handling variables with limited explanatory power. These findings suggest proposed model?s potential and open avenues for future research, particularly in refining its feature importance weighting mechanism, broadening dataset applicability, and examining its compatibility with different distance metrics.

Analysis of determinants influencing the credit ratings of European Union countries

The process of evaluating a country's risk involves numerous intricate factors that must be examined and considered prior to determining the ultimate credit rating. This paper will examine the pertinent factors that are taken into account when assessing an EU member state's creditworthiness. Some of the most significant factors considered when generating a credit rating evaluation include GDP growth, GDP per capita, inflation, governmental debt, and past performance in paying financial obligations. Examining the role of credit rating agencies and their evaluations in the economy, with a particular emphasis on the EU market and regulatory structure as well as the financial crisis of 2007, is crucial for gaining a deeper comprehension of the research. The empirical part of the paper looks into the connection between factors within certain nations and the credit ratings they are given. The paper aims to ascertain the significance of these determinants in EU member states as well as any potential variations in the relative relevance of particular determinants. It will be investigated whether and to what degree determinants affect country credit ratings using the multiple regression analysis method. In the end, a determination on the significance and relationship of factors to the assignment of credit rating assessments will be made on the basis of the analysis performed. The analysis's anticipated outcomes ought to be significant from an economic standpoint. The coefficient of multiple determination will enable comparisons between each nation, enabling an evaluation of the results' representativeness.

A robust examination of COVID‐19 and country risk: Perspectives from the G10 countries

AbstractThis paper examines the effects of COVID‐19 new infections on the financial sovereign risks in the group of ten (G10) countries. The paper utilises panel least squares regression using monthly data over the period February 2020–July 2021. Two sovereign risk measures are examined: the Spread of Government Bond Yields and Sovereign Credit Default Swap spread. The results of the robustness tests show that the spread of the COVID‐19 has affected the sovereign risks significantly and positively. Contagion risks have been extended to exchanges rates and growth rates of international reserves. This paper offers two contributions. First, the results show robust evidence on the impact of COVID‐19 on country's sovereign risks. Second, the severity of COVID‐19 on country's sovereign risks is further. The empirical results carry policy implications that (a) countries must sustain efforts for safeguarding the evolution of COVID‐19 pandemic since it is hindering country's credit worthiness, thus increasing sovereign risks, (b) the G10 countries are advised to follow the zero COVID‐19 strategy, (c) macro prudential measures have to be implemented along with monetary policies that mitigate the sovereign risks and (d) implement social measures to restore the health system and contain the uncertainty on both economic and social grounds.

Is Macro-Equity Only an Answer to Country Credit Risk, or Can it Promote Sustainable Development?

Is Macro-Equity Only an Answer to Country Credit Risk, or Can it Promote Sustainable Development?

An effective pandemic treaty requires accountability

An effective pandemic treaty requires accountability

Institutions and Credit Ratings

This experiment investigates the relationship between these two traits in order to broaden the view and depict the influence of institutions on not just economic development as conventionally defined but also on country credit ratings. In this work, I demonstrate how we can determine the link between a country's credit ratings and the performance of its institutions. I utilized a data collection of nations and indicators of their performance on institutional indicators, including property rights, judicial efficacy, and so on, in my analysis. Finally, I come to the conclusion that there is a substantial link between an effective institution and a better rating in credit reports conducted by prominent corporations in this field. In terms of trustworthiness, I also note the experiment's limitations.

The Impact of Countries’ Credit Rating Scores on the Export Performance of Companies

In the research, a conceptual model with the export performance scale EXPERF (Export Performance Scale) being the dependent variable and with country credit ratings being the independent variables has been developed, and it is intended to empirically investigate the impact of the country credit rating score on the export performance of enterprises by focusing on the country credit rating among many factors that affect the export performance of enterprises. Regarding the model, in the first stage, the relation between the country’s credit rating covering the years between 1993-2016 and the export performance of the enterprises is examined using secondary data through panel unit root tests analysis. In this context, the H1 hypothesis that the country credit rating score given by the credit rating agencies has an impact on the export performance of companies is supported, and it is found that the credit rating score of Turkey affects the export performance of businesses. In the field research covering the second stage of the research, ISO 500 enterprises constitute the universe in which the data is collected. A questionnaire regarding the perceptions of business executives about the export performance of companies in 2013, when Turkey’s credit rating score was raised up to investable level, and in 2016, when Turkey’s credit rating score was lowered, was developed based on the EXPERF scale, and the export performance was measured with online or faceto-face application of the questionnaire to the business executives who participated in the study voluntarily. A judicial sampling method was used in the study, and 306 business executives responded to the questionnaire. The H2 hypothesis that there is a difference between the change in the country credit rating and the export performance of the enterprises is not rejected according to the EXPERF scale, which measures the increase in the country credit rating in 2013 and the decrease in the country credit rating in 2016. Export performance of enterprises differs significantly in the periods when the credit rating of the country decreases and rises.

Macroeconomic Determinants of Remittance for Bangladesh: A Gravity Model Approach

A Gravity Model is used in this study to investigate the macroeconomic determinants of remittances for Bangladesh by using panel data of 10 host countries from 2002-2020. This paper not only uses Pooled OLS, REM and FEM models but also uses even more efficient econometric model, namely PCSE and IV regression model to explore the impact of the macroeconomic determinants of remittances for Bangladesh. This study finds that home country’s income level has significant impacts on remittances but not the host country’s income level. Private sector credit in the host nation affects remittances negatively but home country credit affects remittances positively. The transaction cost of remittances has adverse impact on remittances at the same time Religion affects remittances positively. Larger dependent population in home country reduces remittances similarly political stability in home country reduces remittances. Political instability in the host nation, on the other hand, is linked to an increase in remittances, indicating that migrants tend to send more money home when the host country is in upheaval. Policies aimed at lowering transaction costs, encouraging financial sector growth, and enhancing the business climate should be implemented to encourage remittances and optimize their economic benefit.

Transformation of Household Savings into Investments: The Country's Credit Potential

The Russian economy's long-term growth is inextricably linked to an appealing and efficient investment process, without which it is impossible to upgrade output structurally and qualitatively, build market infrastructure, and boost local competitiveness. The pressing issue of adequate investment tools necessitates an active search for viable sources for domestic economy demands, which concretizes the problem of mobilizing the state's internal resources - the population's savings. According to the experience of countries with a high degree of economic development, population savings are the primary source of establishing the resource basis for ensuring long-term economic growth and development. The function of the domestic financial market in the process of converting savings into investments is examined in this article. It has been established that there is a link between the financial market and the investment process. Theoretical components of the essence of savings and how they are transformed into investments are exposed. The impact of household financial investment volumes on the country's economic development indicators is studied and the dynamics and structure of population savings in Russia. The issues surrounding the conversion of savings into investments are recognized and the directions for intensifying it to maximize the financial potential of savings for the implementation of investment programs.

Indicators of the Banking System and Prospects of Credit Processes in the Management of the Country's Credit Rating

Indicators of the Banking System and Prospects of Credit Processes in the Management of the Country's Credit Rating

International Reserve Management and Firm Investment in Emerging Market Economies

We examine the effects of active international reserve management (IRM) conducted by central banks of emerging market economies (EMEs) on firm investment in the presence of global financial shocks. Using firm level data from 46 EMEs from 2000 to 2018, we document four findings. First, active IRM positively affects firm investment - the effect strengthens with the magnitude of adverse external financial shocks. Second, financially constrained firms, compared with unconstrained ones, are less responsive to active IRM. Third, our results suggest that the country credit spread is a plausible causal channel of the positive IRM effect on firm investment. Fourth, the policies of capital controls and exchange rate managements are complementary to the IRM – it is beneficial to form a macro policy mix including active IRM to safeguard firm investment against global financial shocks. Further, our results indicate the IRM effect on firm investment is both statistical and economical significance and is relevant to the aggregate economy.

Market responses to increased transparency: An Indian narrative

Using the 2010 Transparency and Disclosure norms in India as a discontinuity in the institutional regime within which credit rating agencies operated, we use a difference-in-difference estimator to study how the market reacts to rating changes when regulatory norms require a higher level of transparency. Using data on the market and bank-based instruments from India we show that the market places greater premiums when ratings are generated in a regime with greater transparency and disclosure requirements. We find that the results are driven mostly by downgrades in ratings rather than upgrades, suggesting that the market responds more aggressively to downgrades. Transparency norms for credit rating agencies is an important governance feature even in emerging country credit markets.

Do sovereign credit ratings matter for corporate credit ratings?

This paper proposes a new approach for tackling the issue of the impact of sovereign rating on corporate ratings. As the policy of never rating a private issuer above its government (sovereign ceiling) has been relaxed by the major credit rating agencies, further empirical investigation is needed to identify the key factors that determine the strength of sovereign-corporate nexus. We suggest implementing a nonlinear panel smooth transition regression modelling where the sovereign effect is allowed to vary across different firm-level financial states. Our results reveal that financially healthier corporations in terms of interest and debt coverage ratios are found to be less dependent on their home country credit risk. Our empirical findings have important implications for credit market participants and offer a call for a better understanding of the role of firm-specific financial characteristics in the rating decisions.

The impact of ICT diffusion on sovereign cost of debt

We examine the effect of a country's level of information and communication technologies (ICT) diffusion on its credit rating and cost of debt. ICT diffusion is approximated using the Networked Readiness Index, which is designed to capture a country's capacity and preparedness to participate in the digital economy. We adopt a modified random effects approach which allows us to distinguish between short and long run effects on a dataset of 65 countries for a time span of ten years. We show that ICT have a significant impact on a country's credit rating and cost of debt which is robust to the presence of other variables proposed in the literature. The effect is stronger for non-OECD countries, indicating a pathway for developing countries to improve their access to debt markets. Our conclusions are robust to the advent of the recent financial crisis.

Functioning of credit cooperation: foreign experience and challenges for Ukraine

It is established that the existing banking system is aimed primarily at lending to highly concentrated agricultural enterprises and is not adapted to the needs of small rural businesses. Therefore, the creation of an effective mechanism for lending to small and medium-sized agricultural entities through a credit cooperative system is of particular relevance. Rural credit co-operation is a parallel to banks, an alternative financial system that has begun to firmly occupy a niche in the country's credit and financial system. Its line of business is financial services for small and medium-sized entrepreneurs and villagers who cannot be serviced by banks in rural areas. It is proved that the effective activity of credit cooperation is conditioned by the creation of appropriate prerequisites. This is, first of all, voluntary establishment of credit cooperative institutions and accumulation of funds of individuals and legal entities; the purpose of the credit cooperative to ensure the mode of greatest assistance to its participants in credit, settlement, consulting, and other types of services; recognition of the variety of organizational forms of credit cooperative institutions; the direction of use of accumulated financial resources mainly for production purposes; providing financial support to the credit cooperative and legal and consulting assistance from the state. It is determined that the economic essence of credit cooperation is largely determined not by the type and nature of the participants' activity, but by the specifics of the actions and functions that they cooperate with. The involvement of unions of temporarily free funds of all categories of the population will allow to use its income in the areas of residence, in particular to direct them to the development of the agricultural sector. The creation of credit unions should be seen as encouraging the development of small businesses, including: promoting the development of production and processing of agricultural products in personal peasant and small farms, as well as the development of other small forms of farming in the agricultural sector and processing industry (including the promotion of the creation of agricultural service providers cooperatives); expanding the availability of credit resources for private farms and farms, as well as for cooperative units for the production, processing and marketing of agricultural products and services. Keywords: credit cooperation, credit union, population, personal peasant economy, farming, state.

Country risk at investing in capital markets – the case of Italy

Given the current turbulences on the European capital markets, as well as the expectations of a new recession, it is possible to expect that the risk of individual countries and their capital markets will increase significantly. This is particularly the case of those countries, which have long-term problems with economic instability and imbalances. The basis for country risk quantification is the country credit rating and credit risk of the government bonds. The market-based methods react often differently, as their reactions to the actual market developments are more flexible. The purpose of this paper is to compare various methods of country risk measurement. The study is focused on the country risk of Italy, a country that experienced a turbulent economic development over the last two decades. The results show that the CPFER method and sovereign ratings show a similar level of country risk, while the market-based methods show a higher level of country risk.

The Impact of Financial Globalization on Indian Financial Market: A Case Study of Regional Rural Bank

The RRBs were set up in India under the RRB Act, 1976 with a view to build up the provincial economy by giving, with the end goal of improvement of agribusiness, exchange, trade, industry and other beneficial exercises in the country zones, credit and different offices especially to little and peripheral ranchers, farming workers, craftsman’s and little business people and for issues associated there with and coincidental thereto. In the underlying stages amid the 1980s, RRBs were viewed as basically taking into account the BPL populace by loaning to them towards meeting their venture needs. Yet, after the obligation waivers of the mid 1990s, the reimbursement issues of the country saving money framework started to be amplified with a consequent withdrawal in the stream of credit to little borrower accounts through the saving money framework. The recapitalization of RRBs amid 1994-2000, alongside a reorientation towards productive working reestablished the fortunes of RRBs. From there on the procedure of amalgamation which was begun in 2005 has brought about the quantity of RRBs being brought down from a pinnacle of 196 to 57 toward the finish of 31 March 2014. The researcher had made a modest attempt in this article to understand the impact of Financial Globalization on Indian financial market with the reference of Regional Rural Banks (RRBs) in the two main district of Uttar Pradesh.