Link to the methodology

Link to the feedback report

Methodology update

The updated supranational methodology further enhances the assessment of the financial profile and shareholder support:

• Climate risks

We assess a supranational’s exposure to climate-related credit risks as part of the asset quality assessment. We assess the share of an issuer’s corporate loan portfolio that is potentially affected by climate risks, considering geographical and sectoral distribution, remaining maturity, and climate risk management policies and mitigants.

• Hybrid debt instruments

We introduce guidelines to assess the equity content and instrument rating of hybrid debt instruments, with the equity content ranging from 100% (fully treated as equity) to 0% (fully treated as debt). We limit the sum of the total equity content of qualifying hybrid debt and callable capital to 30% of total capital.

• Callable capital

We include 10% of the callable capital of highly rated shareholders (AA- or above) within a supranational’s capital and increase this value to 25% if highly rated shareholders have authorised and appropriated the callable funds. The differentiation reflects that callable capital for which no additional parliamentary/legislative approval or extraordinary budget is needed has a higher likelihood of being received in a timely manner – should a call ever be needed.

• Shareholder support

We refine our assessment of shareholder support for capitalised institutions, primarily to assesses ‘willingness to provide support’ qualitatively. We combine our assessments of ability and willingness to provide support non-linearly, placing a slightly higher weight on willingness than on ability. This acknowledges that shareholders with a lower credit quality that are committed to an institution can provide significant support, for example, by agreeing to a capital increase. Conversely, shareholders with high credit quality which are less committed to an institution, as informed by the institution’s track record with regard to capital increases and contentious shareholder relations, among others, may be less inclined to provide support if needed.

• Scorecard refinements

We refine our assessments of earnings, NPLs, and funding profiles. An institution’s medium- to long-term ability to retain earnings is informed by net income, adjusted for unrealised, interim fair value net gains (losses) from equity investments or fair value changes of derivative financial instruments. We slightly widen the thresholds at which we assess NPLs, and introduce a ‘Very Weak’ category for NPLs exceeding 10% of total gross loans. Finally, we assess a supranational’s funding access, flexibility and profile qualitatively across seven categories.

We further refine the assessment for actual capitalisation. We measure the difference between mandated capitalisation and actual capitalisation, instead of using an absolute threshold. This is to better capture the headroom of supranationals’ balance sheets and loss-absorbing capacity vis-à-vis limits allowed under an institution’s statutes or credibly enforced operational guidelines.

We increase the maximum uplift from portfolio quality from ‘Very Strong’ to ‘Excellent’ to better reflect rating uplift from exceptionally strong portfolio quality relative to other rating factors.

For capitalised institutions, we introduce an indicative rating for the intrinsic credit profile. This is to better reflect the supranational’s stand-alone credit profile independent from shareholder support. This analytical step will also allow us to rate hybrid debt instruments for which no shareholder support can be assumed.

Finally, in addition to further editorial changes, we also provide clarification on the relationship between short-term and long-term ratings.

Feedback report after call for comments

Scope also publishes the analytical comments received together with a feedback report from market participants during the call-for-comments period that ended on 10 June 2024, as part of the agency’s ongoing commitment to transparency and open dialogue with market participants.