JCR Eurasia Rating measures the willingness and ability of that country to repay its foreign currency debts and financial obligations in a timely manner, by considering the possible risk factors that may arise due to foreign currency borrowings and foreign currency-based economic activities. At the end country rating is the determination of the additional risk premium reflected on the investment and capital costs and profit rates due to the economic and political risks which are carried on. During the process of the determination of the country risk it has been noticed that when the default spread decreases, the country risk premiums decrease or when the probability of default increases, the risk premiums increase.
In fact, sovereign rating is not country rating. Because sovereign rating, is based on the national government’s credit risk and does not include the probability of default risk of the other specific issuers. However, the notes given for countries in theoretical and practical life are closely related to all financial institutions, banks, companies, enterprises and entrepreneurs at all levels, domestic/foreign investors, in short, all public and private economic units in that country, as well as the ruling powers. No institution's rating in a country can exceed the foreign currency rating of that country. Because only the government has the power and the ability to manage foreign exchange risk, monetary and fiscal policies and therefore country rating is the ceiling for other institutions. However, from time to time, only one or two points above the country rating can be achieved thanks to the trust established abroad with the instrument called structured finance.
For transfer risk and the convertibility risk that companies, banks and all economic units are facing, the country rating is very important. All the economic units are determining their parameters according to this rating. Thanks to these ratings, investors understand what kind of risk they face when investing in debt instruments issued by asset backed securities and structured finance instruments techniques. Because the bonds(eurobonds) and bills issued by the treasury of the country, as well as commercial paper issued by private institutions, untranched Securitisation and Tranched ABS-Asset Backed Security techniques, and the prices of the following securities are formed accordingly.
1) CDO- Collateralized Debt Obligation Pools:
a) Corporate- related assets (Loans, Bonds, CDS- Credit default Swap)
b) Resecuritisations (ABS-Asset backed security, CDO-Collateralized debt obligation, CDO- Collateralized debt obligation-Squared)
2) Traditional ABS- Asset backed Security pools:
a) Corporate-related assets (Trade receivables, Leases, CMBS-Commercial mortgage backed securities)
b) Consumer-related assets (Credit Carts, Auto, Loans RMBS-Residential mortgage backed securities)
JCR Eurasia Rating’s Country Rating Criteria
Regarding the country ratings of JCR Eurasia Rating, it is the creation of future projections by making comparisons with the "benchmarking test" method in order to determine the political, social and economic development differences between countries, considering the data of at least 5 years. In addition to the main criteria listed below, Economic Freedom indexes for the independence of local governments and Business Environment Risk Indexes for general environments are also used.
A. POLITICAL RISKS
1. Political System
a) The program of the ruling party
b) The duration to stay in power
c) The political Party law and its status
d) The ideological and fanatic groups situation
e) The public expectation and it’s realization
f) Law order and its tradition
g) The Bureaucracy
h) The country's government and constitutional order
i) Elements that threaten internal and external security
j) The Justice Statistics
k) The Elections (Local, National)
2. The Foreign Relations
a) The international integration
b) EU, US, Japan relations
c) The relations with international organizations
d) The relations with neighbors
e) The country’s strategic situation
3. Social Structure
a) Population, Residence and demographic factors
i. The demographic Statistics
ii. The Population Statistics and 5-year projections
iii. The village, city and distribution situation
iv. The population’s ethnic, religious and language structure and its homogeneity
v. The Local - Foreign Migration
vi. The number of residences and its quality and sufficiency
vii. The life satisfaction
b) The social security and health
i. The Human Rights
ii. The social security and social protection and relationship with other countries
iii. The Health System
iv. Food and Nutrition
v. The approach to the disabled and its application
c) The income distribution, the consumption and poverty
i. The consumption tendencies
ii. The income and wealth distribution and living conditions,
iii. The consumption expenses
iv. The poverty analysis
d) The education, the culture and the sports
i. The literacy levels
ii. The school numbers and their sufficiency
iii. The analysis of education expenses per student
iv. The museum, the protection of historical artifacts and number of visitors
v. The theater, opera, ballet, movies and areas specific statistics
vi. The sport, athlete, trainer and facility analysis
e) The work - employment- unemployment rates
i. The employment situation
ii. The unemployment rates (depending on age, gender, education, location)
iii. The employment data (depending on age, gender, education, location and sectoral differences)
iv. The Revenue Statistics
v. The child employment statistics
vi. The structural business statistics
vii. The industrial goods production statistics
viii. The operating business statistics
ix. The business demographics
x. The foreign capital businesses statistics
xi. The established and closed businesses statistics
xii. The bureaucracy to establish a business
f) The environment and the energy situation
i. The waste water discharge situation
ii. The environmental protection approaches
iii. The production and distribution of electricity
iv. The natural gas, the oil and the situation of the natural resource’s important minerals
g) Science and technology
i. The technological innovations
ii. The technological dependency ratio
iii. The utilization of scientific technologies
iv. The Research and Development Activities
h) Expectations
i. The expectations surveys (made by the Central Bank and other institutions)
ii. The confidence indexes
B. THE ECONOMIC RISK
1) The capacity of the country to generate income
a) GDP data, the efficiency ratios (based on past years)
b) The general equilibrium of the economy
c) The growth trends
d) The industrial Production index
e) The industrial production capacity ratio
f) The fixed capital investments
g) The incentive policies for the fixed capital investments
h) The construction permits given
i) The SME incentive policies
j) The automotive, white goods, electrical production, export and import data
k) Fiscal and Budget Policies
l) The public finance and the budget realizations (Central administrations and consolidation)
m) The indebtedness analysis
n) The export
o) The agriculture (Vegetable production, animal and aquaculture, machinery and equipment)
p) The tourism
q) Transport, Communication and Traffic
r) Financial status and need of Operating Organizations and their ratio to GDP
s) The operating state economic enterprises profit/loss situation and their ratio to the GDP
t) The operating state economic enterprises indebtedness situation and their ratio to the GDP
u) The operating state economic enterprises profitability and their place/importance in the economy
2) The liquidity indicators
a) The price stability, the inflation
b) The consumption/production price indexes(General sector)
c) The Purchasing Power Parity
d) The exchange rate developments
e) The supply of money
f) The Central Bank’s effectiveness
g) The monetary policies
h) The official international reserves
i) The balance of payments
j) Insurance - Reinsurance companies related statistics (company numbers, premiums etc.)
k) The capital issuances (countries and sectoral wise)
l) Statistics on the authorized institutions, financial lease, factoring, consumer finance companies, gold stock exchange, lenders and usury (even if it’s not legal)
m) The receivables of the Treasury
n) The Banking data
o) The cash equilibrium of the treasury and its realization
3) Foreign Debt formation and accumulation
a) The debt statistics (capital, interest rate, maturity)
b) The comparison of the debts with country’s internal values