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November 2010

RMI's Credit Rating Initiative Gains Momentum

On 4 November, RMI's credit rating initiative (CRI) achieved another milestone: it expanded to cover publicly listed companies in the U.S. and Canada.  The number of individual probability of default (PD) forecasts that will be reported daily is now 1,600 large-cap companies representing the different industrial sectors, with the expanded coverage including 500 firms in the US and 100 firms in Canada.  The number of firms with PD computed for aggregate forecasts is now over 25,000 in 14 economies - Australia, China, Hong Kong, Indonesia, India, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan, Thailand, U.S. and Canada. Future phases of the initiative will further expand the coverage to include other economies around the globe. 

"This has been a major achievement for us and we have worked on it for the past two months", says Qianqian Wan, lead of the CRI's Data Collection Team. She shares that the main challenge in this project has been the collection of comprehensive data, which usually requires a lot of resources. However, RMI's team has worked intensively on building the database and has used various sources such as the Bloomberg, Datastream, CRSP and Compustat to make the dataset complete for PD estimation.

The CRI was conceptualized as a constructive response to the recent global financial crisis. Since then, it has come a long way and launched the beta version (http://www.rmi.nus.edu.sg/rmicri/) of the rating system on 15 July this year at RMI's Fourth Annual Risk Management Conference. To aid the research currently carried out by various global teams and RMI's internal team, RMI maintains its own comprehensive database.

RMI has tapped on the global talent pool in a collaborative effort with its "selective Wikipedia" approach, with the aim of keeping the credit rating system up-to-date, relevant, evolutionary and organic.

Credit Analyst Survey

To make the credit rating system more comprehensive, RMI is conducting a quarterly credit analyst survey (CAS) online to assemble the assessment of companies' credit worthiness from covering credit analysts.  This adds to the rating system qualitative or forward-looking information that is not fully captured by quantitative data.  Analysts can modify their credit opinions on real-time basis. They are also reminded to update their opinions at the end of each quarter. RMI aims to build the world's first real-time credit analyst opinion database for publicly listed firms which will benefit the financial community at large (more information on the survey can be found at http://www.rmi.nus.edu.sg/survey/). RMI also launched the Chinese version of the CAS website to make it accessible to a larger population of analysts from mainland China, Hong Kong or Taiwan.

Stella Li, a research analyst who is working on the survey shares her work experience: "I enjoy interacting with the credit analysts and find the experience quite enriching." She emphasizes that CAS' short-term goal is to maintain a stronger relationship with the participating analysts. In addition, the team is also actively broadening the survey participation globally.

Presently, there are more than 50 credit analysts from private and public financial institutions, mostly from Asian economies, contributing to the survey. "Since the launch of CAS in March 2010, we have already collected 833 analysts' responses in the first three quarters and obtained meaningful results showing a general consistency between the analysts' predictions with our quantitative model PD forecasts," adds Stella. Recently, RMI also sent out global invitations to the industry in two conferences at New York and China (see Event Briefings for more details).

Global Credit Review - A Professional Journal

Meanwhile, the CRI team is also working on a professional journal titled Global Credit Review (GCR). This semiannual journal  targets finance professionals, policy makers and academics and will cover recent developments of credit market and credit rating models, policy issues, analysts' opinions and CRI progress reports. The first issue of the magazine is planned to be published in January 2011.

"Our aim is to advance scientific research and development in the field of credit rating. The methodology used by CRI avoids the rating shopping and moral problems that affect the ratings from major for-profit credit rating agencies, "explains Prof. Jin-Chuan Duan, RMI's Director and lead of the CRI." RMI does not plan to apply for an officially sanctioned credit rating agency status, rather the goal is to contribute to the infrastructure of the world's financial system and strive to promote NUS-RMI as a global credit risk research center," he adds.

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Editor: Ivy Wang (rmiwy@nus.edu.sg)