Risk rating
Definition of risk rating
CofaceBdi’s risk rating estimates the risk of extending commercial credit to companies and businesses in Israel. This estimate is based on the analysis of the strengths and weaknesses of the companies and the business environment where the companies operate. The score assesses the chances the company will meet its liabilities in the short and medium term, up to 1-year. The score measures the probability of default of the company and is continuously statistically tested. Default is defined as ongoing and constant non-payment (as opposed to a one-time event) of over 90 days or severe financial difficulties.
rating principles
CofaceBdi has been rating companies and businesses in Israel for over 20-years, from self proprietorships to the leading multinational companies in the economy. CofaceBdi’s risk score is used by many companies in the economy including the banking system and credit insurance companies in Israel and abroad.
rating ruler
CofaceBdi’s rating ruler has 10 categories, ranging from 1-negligible risk (the best) up to 10-defaulted companies. Each risk score represents a certain probability of Default (PD) for up to one and a half year.
PD in % (defined as payment problems and ongoing non-payment)
| 10 | 9 | 8 | 7 | 6 | 5 | 4 | 3 | 2 | 1 |
|---|---|---|---|---|---|---|---|---|---|
| 100% | 87.1% | 33.9% | 5.6% | 0.93% | 0.10% | 0.07% | 0 | 0 | 0 |
| Risk score | Risk assessment |
|---|---|
| 1 | Large company, stable and financially strong – very low probability of default |
| 2 | Large company in good financial situation – low probability of default |
| 3 | A company in very good financial situation – low probability of default |
| 4 | A company in good financial situation – probability of default below average |
| 5 | A company in good financial situation – probability of default slightly below average |
| 6 | A company in reasonable financial situation – probability of default slightly above average |
| 7 | Intermediate financial situation – probability of default above average |
| 8 | A company with financial problems with probability of default |
| 9 | A company with severe financial problems with very high probability of default |
| 10 | A company in default in its liabilities (see default definition) |
CofaceBdi closely monitors the scores based on new information gathered and the extent of time since the score was last determined.
rating process
Analysts gather, check and analyze the information in CofaceBdi systems. In addition, they contact the company’s managers to inquire about the company’s operations, its financial situation, business environment, including the history of “Red Lights® “, identification of related companies, ownership, charges, etc. A trained team of employees performs inquiries with suppliers (extent of activities, payment morality, etc.), customers (extent of activities, satisfaction, etc.), service providers (extent of activities, payment morality, etc.). The analysts evaluate all the information gathered and determine a score for the company in accordance with the rating methodology. The score granted by analysts is controlled and validated by the analysts’ team manager.
The rating methodology is based on the analysis of the
following information:
-
Demographic data on the company (size, branch, years in
existence, activity)
-
“Red Lights®
(history of significant negative events: payment morality, returned checks, restricted bank accounts, court suits,
receivership, etc.)
- Related companies (including ownerships, sister and daughter companies, etc.)
- Financial data and reports
- Questioning of the company’s management
- History of company’s scores
- Branch situation
- Macro economic data
- Suppliers / customers information
- Information from branch information clearing houses
- Analysis of charges
- Analysis of other data: management, trends, activity, etc.
