Credit Analysis and International Loans

The magnitude of the current debt crisis is forcing a reexamination of the effectiveness of political and credit risk analysis and a reconsideration on the part of international banks of loans to sovereign borrowers. This paper examines the problem of predicting the creditworthiness of sovereign bor...

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Bibliographic Details
Published in:Management International Review 1986-01, Vol.26 (1), p.56-63
Main Author: De Witt, R. Peter
Format: Article
Language:English
Subjects:
Bank loans
Bankers
Borrowing
Business risks
Cash flow
Corporate finance
Country risk
Credit
Credit investigation
Credit risk
Currency
Exports
External debt
Foreign loans
GNP
Gross National Product
Interest rates
International aspects
International banking
International finance
International loans
Loans
Political risk
Rating
Risk assessment
Statistical analysis
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Summary:The magnitude of the current debt crisis is forcing a reexamination of the effectiveness of political and credit risk analysis and a reconsideration on the part of international banks of loans to sovereign borrowers. This paper examines the problem of predicting the creditworthiness of sovereign borrowers. Creditworthiness, a somewhat vacuous notion has been used by international bankers to indicate the political and economic risk associated with loans to soverign borrowers. Creditworthiness as it is used by lending institutions is based on a number of factors including: a country's balance of payments; it's debt service ratio as well as the quality leadership for managing the nation's economy. A thesis of this article is the reality that none of the characteristics of an economy's behavior, GNP, exports, imports, inflation, debt service, et cetera form the basis alone or in combination for judging creditworthiness. Recent payment problems with sovereign borrowers have also encouraged a shifting in lending practices toward corporate borrowers. The shift in lending toward corporate borrowers has encouraged a reconsideration of an effective credit analysis system the dimensions of which form the parameters of this discussion.
ISSN:0025-181X
0938-8249
1861-8901