The Euromoneyformula for calculating its emerging market bank (Emba) credit rating uses eight variables. These are: net loans to total assets, non-performing loans to gross loans, return on average assets, overhead costs to net income, deposits to net loans, inflation, disclosure and operating environment. The data for these financial ratios was taken from BankScope, a product of the rating agency IBCA. Our thanks to IBCA for letting us use the data. The data was a mixture of 1995 and 1996 figures and a "1" in the left-hand column of the country tables (second from left in the top 50) shows that 1996 data was used. The financial and rating information used was the latest available on July 28 1997.
The model was tested for its correlation with Moody's financial strength ratings on a sample of 224 banks from 40 emerging markets, all of which had a Moody's bank financial strength rating and total assets in excess of $1 billion. By using a multiple regression model, it was possible to test the formula to discover how well it correlated with Moody's financial strength ratings, to find which variables had the most and the least explanatory power and to insert other variables to see how this affected the outcome (see main story).