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The impact of sovereign rating actions on bank ratings in emerging markets

Author

Listed:
  • Williams, Gwion
  • Alsakka, Rasha
  • ap Gwilym, Owain
Abstract
This paper analyses the effects of sovereign rating actions on the credit ratings of banks in emerging markets, using a sample from three global rating agencies across 54 countries for 1999–2009. Despite widespread attention to sovereign ratings and bank ratings, no previous study has investigated the link in this manner. We find that sovereign rating upgrades (downgrades) have strong effects on bank rating upgrades (downgrades). The impact of sovereign watch status on bank rating actions is much weaker and often insignificant. The sensitivity of banks’ ratings to sovereign rating actions is affected by the countries’ economic and financial freedom and by macroeconomic conditions. Ratings of banks with different ownership structures are all influenced strongly by the sovereign rating, with some variation depending on the countries’ characteristics. Emerging market bank ratings are less likely to follow sovereign rating downgrades during the recent financial crisis period.

Suggested Citation

  • Williams, Gwion & Alsakka, Rasha & ap Gwilym, Owain, 2013. "The impact of sovereign rating actions on bank ratings in emerging markets," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 563-577.
    • Handle: RePEc:eee:jbfina:v:37:y:2013:i:2:p:563-577
    DOI: 10.1016/j.jbankfin.2012.09.021
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    References listed on IDEAS

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    More about this item

    Keywords

    Sovereign ceiling; Sovereign upgrades/downgrades; Sovereign watch; Bank ratings; Emerging markets;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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