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Who should attend
This case study intensive workshop is ideal for Bank Analysts and Client Relationship Managers in commercial banks, trade finance banks, development banks, export credit agencies, as well as bond and equity Investors with at least two years’ experience in lending or investing in emerging and frontier markets.
About the course
The failure rate of banks in emerging markets over any five-year period can be greater than one in five and often more. This course identifies the classic causes of emerging market failures and how to identify the warning signs of those most likely to fail by studying a broad range of examples.
Key Learning Outcomes:
- The interconnectedness of the economy and the banking system and symptoms of both systemic and individual bank failures in emerging markets
- The effectiveness of financial analysis and challenges in emerging markets
- The quality of regulation and the impact this has in failure rates
- What forensic analysis is required to identify bank failures
The case studies for this course will be drawn from Argentina, Azerbaijan, India, Kazakhstan, Lithuania, Nigeria, Russian Federation, South Africa, Thailand and Turkey.
Signs of distress
- Common themes in troubled financial institutions: excessive growth, over-concentration, volatile earnings sources, asset and liability mismatches, dependence on unstable funding
- Symptoms of banks’ credit standing: financial, non-financial and market indicators
- Exercise: identify failed and viable banks
This section will identify the key macro-economic trends which can erode credit worthiness and the interconnectedness of the economy and banking system.
- Key macro-economic policies which:
- Support banking sector activity
- Erode credit worthiness
- Systemic risks within a financial system: macro variables, competitive pressures, shadow banking system
- Sophistication of the local market and volume of banking products and activity
- Distribution of income: GDP per capita, savings rates, disposable income
- Improving economic prospects of the country and population
- Depositor protection schemes: existing, not available, effectiveness?
- Independence of the legal system and rule of law.
Key Financial, Political and Regulatory Issues
- Asset quality in the loan book:
- Excessive growth and concentrations
- What constitutes an non-performing loan (NPL) or impaired loan in different countries
- Hidden impaired loans
- Related party lending
- Expected NPL levels geographically and between middle and low income countries
- Companies in crisis: recognizing weak management and lack of integrity
- Quality of risk management
- Disclosure and corporate governance concerns
- Inter-group support: ability of a stressed parent company to support subsidiaries
- Illustration case study: bank failure driven by poor management
- Assessing earnings: quality and volatility
- Control of costs
- Adequacy of earnings to fund bank strategy
Liquidity and Funding Risks in Emerging Markets
- Local funding options when there is limited disposable income
- Assessing funding: diversity of funding sources
- Opportunities and flexibility to refinance
- Asset and liability management concerns: mismatches in FX, interest rates and maturities
- Use of derivatives and lack of derivatives to manage FX and interest rate risk
- Liquidity risk management: transaction and funding stability, access to emergency funding
- Securitization vehicles: a viable funding option?
- Amount of capital
- Quality of capital
- Capital buffer: stress testing quality and adequacy of capital to withstand write-downs and ensure continued solvency
- Ability to raise capital
Forensic Analysis of Major Bank Failures in Various Countries
- Illustration case study: analysis of weak and failing banks and key ratios
- Exercise: effectiveness of ratios in predicting failing banks in less-developed markets
This section will focus on the quality of regulation
- Quality of regulation and supervision
- Sophistication of regulations: the adoption of Basel I, II or III?
- Regulatory forbearance
Rescue Options When Banks Fail
This section will focus on the support and rescue options open to regulatory bodies.
- Solvency and liquidity problems
- Lender of last resort: safety net from shareholders and/or government
- Bail out versus bail in options
- Does size matter?
- Political factors in bank defaults, rescues, critical timing issues
- Developed market solutions versus emerging market solutions
- Illustration case study: Thai bank privatization – using a bad bank to dispose of problem loans
Videos and materials
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