Analytics, Baltic, Banks, Financial Services, Investments

The new Special Comment, entitled "Moody's Approach to Estimating Baltic Banks' Credit Losses", describes how Moody's analyses macroeconomic scenarios to estimate the lifetime credit losses on individual institutions' risk exposures, informs LETA.

"The Baltic states have been affected and will continue to be affected by the recession in the region, with GDP decreasing dramatically in all three countries. The downturn is being felt by banks first and foremost through losses in their loan and securities portfolios as well as through pressure on their pre-provision income," says Kimmo Rama, Moody's lead analyst for the Baltic banking system. In the current operating environment, where most asset classes are being adversely affected by the global recession, it is essential to take a forward-looking approach to banks' creditworthiness.

Particular emphasis is being placed on the sufficiency of their capital to withstand potential losses stemming from their current activities, after taking internal capital generation into account. In the case of the Baltic banks, potential losses are largely related to their loan portfolios.

The purpose of this analysis is for Moody's to determine a relative ranking of banks according to their resulting capital adequacy scores, net of estimated credit losses, and how likely they are to require external support to remain adequately capitalised.