Rating Models and Validation - Oesterreichische Nationalbank

Rating Models and Validation
This will make it possible to evaluate the start-upÕs business success to date
on the basis of quantitative data and to compare this information with the business
plan and future planning information, thus providing a more complete picture
of the start-upÕs creditworthiness.
NPOs (Non-Profit Organizations)
Although NPOs do not operate for the purpose of making a profit, it is still necessary
to review the economic sustainability of these organizations by analyzing
their annual financial statements. In comparison to those of conventional profitoriented
companies, the individual balance sheet indicators of NPOs have to be
interpreted differently. However, these indicators still enable reliable statements
as to the organizationÕs economic efficiency. In order to allow forward-looking
assessments of whether the organization will be able to meet its payment obligations,
it is also necessary to analyze the organizationÕs debt service capacity.
This debt service capacity analysis is to be reviewed in a critical light by assessing
the organizationÕs planning and future development. It is also important to analyze
bank account activity data in order to detect payment disruptions at an
early stage. The viability of an NPO also depends on qualitative factors such
as its management and the prospects of the industry.
As external information, the general legal and political circumstances in
which the NPO operates should be taken into account, as NPOs are often
dependent on current legislation and government grants (e.g. in organizations
funded by donations).
2.4 Corporate Customers — Specialized Lending
Specialized lending operations can be characterized as follows: 3
— The exposure is typically to an entity (often a special purpose entity (SPE)) which
was created specifically to finance and/or operate physical assets;
— The borrowing entity has little or no other material assets or activities, and therefore
little or no independent capacity to repay the obligation, apart from the
income that it receives from the asset(s) being financed;
— The terms of the obligation give the lender a substantial degree of control over the
asset(s) and the income that it generates; and
— As a result of the preceding factors, the primary source of repayment of the obligation
is the income generated by the asset(s), rather than the independent
capacity of a broader commercial enterprise.
On the basis of the characteristics mentioned above, specialized lending
operations have to be assessed differently from conventional companies and
are therefore subject to different data requirements. In contrast to that of
conventional companies, credit assessment in this context focuses not on the
borrower but on the assets financed and the cash flows expected from those
assets.
3 Cf. EUROPEAN COMMISSION, draft directive on regulatory capital requirements, Article 47, No. 8.
22 Guidelines on Credit Risk Management