recorded differently, therefore they would not have been
comparable.
Similarly to the practice used in rating agencies, the
determination of the weights associated with the variables
used, since this is a job defined for the first time for the
sector, and with a different approach to those applied up to
now, has been configured on the basis of subjective considerations a priori; however, based on technical and rational
expectations, which will nevertheless be subject to refinement over time with the observation of the results produced.
The number of calculable indices, in the presence of the
variables made available by the RICA archive, can be very
high, especially where there is a certified balance sheet, and
the counterparty is present in the Central Risk. A priori is
difficult to state that indices belonging to a specific area
(liquidity, profitability, etc.) are indicative of credit risk,
depending on the results of the sample on which they were
determined.
The possible combinations of adoptable variables depend
in synthesis of:
• presence of different information sources;
• number and depth of the data set available: for example,
the availability of only one or a few years of economic
and financial data does not allow to calculate the variation indices;
• possibility to calculate transformed variables (logarithmic, etc.).
In the model under study, we are in the presence of an
information source, deliberately chosen as unique for simplicity of use and reliability of the data contained therein,
one characterized by a significant depth both temporal and
spatial.
The variables used in the calculations of the rating
algorithm proposed in the present report, as introduced,
show some substantial differences with respect to the two
previously mentioned methods; Moody’s for ISMEA and
EM Score by Altman.
These rating assignment methods are mainly based on the
historical “fundamental’ analysis and on the collateral presented by the business owner. This modus operandi is based
on the implicit and intuitive postulate for which past performances have the same probability of replicating in the
future.
This approach appears not to be relevant to the management reality of farms. The past, while retaining valuable
insights into the evolution of the company’s financial and
equity performance, cannot be considered the predominant
factor for future profitability and creditworthiness and,
therefore, for future prospective analysis.
From the moment in which the payment of a credit line
occurs, the past economic conditions “weigh” little (obviously after appropriate assessment of any excessive previous
debit charges). What can most affect the possibility of not
repaying debts on time and, in the most serious cases, falling
into default, are the entrepreneurial and innovation skills
compared to the uncertainty of the market, elements that are
difficult to predict but which can be assessed in the light of
business projects—consistent and functional.
Some authors believe that the application utility of the rating
methodology is greater for large industrial companies, where a
potential lender cannot have direct access to management.
According to this thesis, in the case of SMEs it would therefore
be preferable to visit the productive reality rather than to trust a
synthetic judgment such as that offered by the ratings. The
application of the New Prudential Supervisory Agreement on
minimum capital requirements, better known as “Basel II”, and
in the future of the even more stringent one of “Basel III”, has
however made it necessary for credit institutions to assign a
rating for any type of use of funds, including SMEs.
The ambitious claim of ratings to provide a very brief
analysis of PD, through the simple indication of letters followed by numbers or positive/negative indications, has often
clashed with empirical evidence that, in price changes also
associated with changes in the attribution of rating by specialized agencies, have followed the power laws rather than
the distributions of the “Gaussian” bell curve.
Rather than continuing to focus mainly on the potential
risks that could lead to insolvency, without ignoring the
indication of a synthetic creditworthiness judgment, this
work aims to create a calculation system led by positive
terms, that is, based on the development opportunities, on
the intrinsic potentials of the company system, and therefore
based on the resources actually available in the company,
which are more easily identifiable and assessable in an
endogenous way and indicative of the company “forces” in
the strict sense. In confirmation of this statement it is commonly found that even in the case of SWOT analysis,
internal analysis (strengths and weaknesses) is (ex post)
almost always the most coherent and complete, while the
external one, concerning exogenous elements such as
opportunities and threats, most of the time it underestimates
risks (some of which are not actually even conceivable ex
ante) or overvalues opportunities not directly influenced by
the company itself, but subject to the occurrence of “random”, fortuitous, unpredictable or contingent elements.
The assessment of the creation of development opportunities and of the intrinsic potential of the corporate system,
the main object of the study’s survey, constituting a clear
reduction of insolvency risks, allows a mainly indirect
association of the PD ranges to each rating class.
116
F. Capitanio et al.
comparable.
Similarly to the practice used in rating agencies, the
determination of the weights associated with the variables
used, since this is a job defined for the first time for the
sector, and with a different approach to those applied up to
now, has been configured on the basis of subjective considerations a priori; however, based on technical and rational
expectations, which will nevertheless be subject to refinement over time with the observation of the results produced.
The number of calculable indices, in the presence of the
variables made available by the RICA archive, can be very
high, especially where there is a certified balance sheet, and
the counterparty is present in the Central Risk. A priori is
difficult to state that indices belonging to a specific area
(liquidity, profitability, etc.) are indicative of credit risk,
depending on the results of the sample on which they were
determined.
The possible combinations of adoptable variables depend
in synthesis of:
• presence of different information sources;
• number and depth of the data set available: for example,
the availability of only one or a few years of economic
and financial data does not allow to calculate the variation indices;
• possibility to calculate transformed variables (logarithmic, etc.).
In the model under study, we are in the presence of an
information source, deliberately chosen as unique for simplicity of use and reliability of the data contained therein,
one characterized by a significant depth both temporal and
spatial.
The variables used in the calculations of the rating
algorithm proposed in the present report, as introduced,
show some substantial differences with respect to the two
previously mentioned methods; Moody’s for ISMEA and
EM Score by Altman.
These rating assignment methods are mainly based on the
historical “fundamental’ analysis and on the collateral presented by the business owner. This modus operandi is based
on the implicit and intuitive postulate for which past performances have the same probability of replicating in the
future.
This approach appears not to be relevant to the management reality of farms. The past, while retaining valuable
insights into the evolution of the company’s financial and
equity performance, cannot be considered the predominant
factor for future profitability and creditworthiness and,
therefore, for future prospective analysis.
From the moment in which the payment of a credit line
occurs, the past economic conditions “weigh” little (obviously after appropriate assessment of any excessive previous
debit charges). What can most affect the possibility of not
repaying debts on time and, in the most serious cases, falling
into default, are the entrepreneurial and innovation skills
compared to the uncertainty of the market, elements that are
difficult to predict but which can be assessed in the light of
business projects—consistent and functional.
Some authors believe that the application utility of the rating
methodology is greater for large industrial companies, where a
potential lender cannot have direct access to management.
According to this thesis, in the case of SMEs it would therefore
be preferable to visit the productive reality rather than to trust a
synthetic judgment such as that offered by the ratings. The
application of the New Prudential Supervisory Agreement on
minimum capital requirements, better known as “Basel II”, and
in the future of the even more stringent one of “Basel III”, has
however made it necessary for credit institutions to assign a
rating for any type of use of funds, including SMEs.
The ambitious claim of ratings to provide a very brief
analysis of PD, through the simple indication of letters followed by numbers or positive/negative indications, has often
clashed with empirical evidence that, in price changes also
associated with changes in the attribution of rating by specialized agencies, have followed the power laws rather than
the distributions of the “Gaussian” bell curve.
Rather than continuing to focus mainly on the potential
risks that could lead to insolvency, without ignoring the
indication of a synthetic creditworthiness judgment, this
work aims to create a calculation system led by positive
terms, that is, based on the development opportunities, on
the intrinsic potentials of the company system, and therefore
based on the resources actually available in the company,
which are more easily identifiable and assessable in an
endogenous way and indicative of the company “forces” in
the strict sense. In confirmation of this statement it is commonly found that even in the case of SWOT analysis,
internal analysis (strengths and weaknesses) is (ex post)
almost always the most coherent and complete, while the
external one, concerning exogenous elements such as
opportunities and threats, most of the time it underestimates
risks (some of which are not actually even conceivable ex
ante) or overvalues opportunities not directly influenced by
the company itself, but subject to the occurrence of “random”, fortuitous, unpredictable or contingent elements.
The assessment of the creation of development opportunities and of the intrinsic potential of the corporate system,
the main object of the study’s survey, constituting a clear
reduction of insolvency risks, allows a mainly indirect
association of the PD ranges to each rating class.
116
F. Capitanio et al.