• 
• 

Published on December 17, 2007

Banks with small customer bases are said to have high corporate concentrations.

Such "single-name concentrations" remain a modest risk for banks in the developed world and a high risk among emerging-market banks.

"The modest risk for banks in developed countries generally reflects moderate or contained single-name concentrations and good quality on average, though with important exceptions," said Standard & Poor's credit analyst Renato Panichi, one of the co-authors of the report, "Corporate Concentration Risk at Banks Is Modest in Mature Markets, High in Emerging Markets."

"In contrast, emerging-market banks feature high single-name concentration, which is a major risk and constraining rating factor for many, with the notable exception of those in Latin America," added Panichi.

Standard & Poor's credit analyst Bernard de Longevialle said: "For this global study, our second since 2005, we analysed the top 20 single-name concentrations at 176 of the banks we rate ...."

"Amid the current credit crisis, companies appear to be returning to banks for funding. This trend toward re-intermediation, if confirmed, may add a certain degree of concentration."

The current crisis highlights some deficiencies in current accounting and regulatory regimes in developed and emerging markets governing single-name concentrations. Bank regulations have not to date prevented banks from taking off-balance-sheet single-name concentration risks that are sometimes excessive, the agency said.

Standard & Poor's believes investors would benefit from increased public disclosure about the size of banks' large exposures, though no country currently requires this.

"We understand that many regulators are working on tighter rules for corporate concentrations of all kinds, and we will monitor how much they can close the current gap. However, regulatory action is only part of the solution. Banks in particular need to establish more sophisticated enterprise-risk management," the agency said.

"For our part, in the belief that concentration risk is an important element in the risk profile of a bank, we will start quantifying impacts of single-name, geographic, and sector concentration in the risk-adjusted capital framework that we will introduce in 2008."