Risk rating

Risk rating

CofaceBdi scoring methodology

 

Definition of risk scoring

CofaceBdi’s risk scoring 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.

Scoring principles

CofaceBdi has been scoring 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.

Scoring ruler

CofaceBdi’s scoring 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 full default)

10987654321
Failure69.0% 13.5%3.9%0.5%0.01%0000

PD in % (defined as payment problems and ongoing non-payment)

10987654321
100%78.9%24.2%4.7%0.4%0.1%0.07%000
Risk scoreRisk assessment
1Large company, stable and financially strong – very low probability of default
2Large company in good financial situation – low probability of default
3A company in very good financial situation – low probability of default
4A company in good financial situation – probability of default below average
5A company in good financial situation – probability of default slightly below average
6A company in reasonable financial situation – probability of default slightly above average
7Intermediate financial situation – probability of default above average
8A company with financial problems with probability of default
9A company with severe financial problems with very high probability of default
10A 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.

Scoring 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 scoring methodology. The score granted by analysts is controlled and validated by the analysts’ team manager.

The scoring 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.
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