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COUNTRY RISK ANALYSIS

COUNTRY RISK ANALYSIS. Overseas Economic Research Institute The Export-Import Bank of Korea. PRESENTATION CONTENTS . Trend Overview Approaches Area Study. Country Risk Analysis. 1960~1970: Emergency Outbreaks (War, Coup d ’ Etat)

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COUNTRY RISK ANALYSIS

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  1. COUNTRY RISK ANALYSIS Overseas Economic Research InstituteThe Export-Import Bank of Korea

  2. PRESENTATION CONTENTS Trend Overview Approaches Area Study

  3. Country Risk Analysis • 1960~1970: Emergency Outbreaks (War, Coup d’Etat) => Raised concern on “Political risk” • 1980~1990: Debt Default in Developing Countries => International Issue on “Country risk” • 2000~ : Increased Transactions with Globalization => Risk Management of Emerging Market Trend

  4. Country Risk Analysis • Economic Crises in Emerging Markets Trend

  5. Country Risk Analysis • Major Economic Crises by Region Trend

  6. Country Risk Analysis • Definition of Country Risk “Degree of Default Risk of the Country” It covers factors to influence the default risk of the country resulting from economic deterioration, political events, currency depreciation and so on. • Major Elements of Country Risk (OECD) - General Moratorium - Delay Transfer of Funds - Fluctuations in Exchange Rates - Measure or Decision to Prevent Payment - Force Majeure Overview

  7. Country Risk Analysis • Comparison of Major CRR Agencies Overview

  8. Country Risk Analysis • Comparison of Its Utilization by Agency • Focus to Measure (Standard & Poor’s) “ It measures the capacity and willingness of the government to pay its debt in due conditions. ” Overview

  9. Country Risk Analysis • Country Risk Rating Systems - Fully Qualitative System Merits : Available Sufficient Report - Structured Qualitative System Merits : Easy in Comparing between Countries - Check List System Merits : Clear in Evaluating Rating - Statistical System Merits : Efficiency and Forecasting Overview

  10. Country Risk Analysis • Rating Factors by Agency Overview

  11. Country Risk Analysis Rationale • Basic Information of Decision-Making for External Transactions based on the Country Risk Analysis => Credit Policy Attitude toward Markets • Risk Management of Foreign Assets in light of Measure the Payment Capacity of a Borrower => Management of Risk weighted Assets Approaches

  12. Country Risk Analysis CRAM (Country Risk Assessment Model) • Mixture of Quantitative and Qualitative • Operated by Qualitative Methods (1977-1997) • Introduction of Quantitative Methods (1998) • Model Enhancement (2002, 2005) • Developing Model Methodology… Approaches

  13. Country Risk Analysis CRAM (Country Risk Assessment Model) • Intervals: Regularly and Frequently • Annual Country Risk Rating Plan • Regularly: Quarterly Basis • Requested Country from Credit Departments • Deserved Country to be Evaluated • Others Approaches

  14. Country Risk Analysis (1) Quantitative Factors • Nominal GDP • Per Capita GDP • Real GDP Growth Rate • Inflation • Budget Balance to GDP • Total Domestic Investment to GDP • Current Account Balance to GDP • Foreign Reserves to Average Monthly Imports • Total Exports Increasing Rate • Total Exports to GDP • Total External Debt Stocks to GDP • Total External Debt Stocks to Total Exports • Debt Service Ratio • Short-term Debt to Foreign Reserves Approaches

  15. Country Risk Analysis (2) Qualitative Factors • Economic Situation : Structural Vulnerability, Growth Potentials, Policy Performance • Political & Social Situation : Political & Social Stability, Turmoil/Events, International Relation • International Creditworthiness : Willingness to Pay External Debt, Appraisal from International Markets… Approaches

  16. Country Risk Analysis • Incorporated Overall Score • Overall Score = (QT Score + QL Score)/2 • Individual Factors: Converted Weights into Score • QT Score Discount for the Transition Economy • Matched Ratings Approaches

  17. Country Risk Analysis • Procedure for Country Risk Classification • Country Risk Evaluating Meeting • Country Risk Analyzing Debate • Country Risk Evaluating Committee • Decision of Country Risk Rating • Major Countries : Debate, Committee • General Countries : Debate Approaches

  18. Country Risk Analysis • Notification of Country Risk Rating • Internal Notification • Customer : Credit Department… • Service : Country Risk Ratings and Related Reports • External Notice • Service : Released Ratings since April 2007 www.koreaexim.go.kr Approaches

  19. Country Risk Analysis Area Study

  20. Country Risk Analysis Area Study

  21. Country Risk Analysis • Country Report • Objective Broad Understanding on an Available Country to Do Business in perspective of Economic Cooperation • Contents Overall Information and Economic Situation, Industry, Investment and Feasible Program for the Country • Background Country Risk Evaluating and Related Reports Area Study

  22. Thank You Very Much ! Yang-Hyeon JOCountry Risk Economist

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