Country Risk Part.II

Country risk is actually a combination of a multitude of risks influenced by three types of factors:

* Economic and financial factors (banking systems failing, unstable tax system, poor management of public finances ...)
* The political (legitimacy of governments, political repression, censorship, ...)
* (Socio-cultural attitudes and traditions, unequal access to resources ...)

The diagram below provides a framework for country risk analysis, the aim being to understand that country risk can be approached through a large and varied risk factors (both domestic and international).


What are the measurement tools available to risk such a company wishing to conduct an operation of setting up abroad? Two main tools are characteristic of the analytical framework for country risk:


The rating is the most used tool in the evaluation of country risk faced by business entities that have concluded a contract on an international scale. The ratings are mechanical projection of reality on a scale of one-dimensional notation. Rating procedures use criteria (economic, financial, political, social ...) very objective to make the mechanics 'scientific'.

These are essentially specialized agencies that are responsible for developing the ratings. These institutions are in most of the rating agencies (Fitch Ratings, Political Risk Services, Moody's and Standard & Poor's), but also specialized firms (Business Environment Risk Intelligence and Economic Intelligence Unit) and financial newspapers (Institutional Investor). In Europe, such as credit insurers Coface (French Insurance Company for Foreign Trade) have a role in that country risk analysis. Indeed, COFACE is often the preferred partner of SME exporters who lack the internal resources of country risk analysis.

Anticipation instruments par excellence, the risk scenarios is another essential procedure in the analysis of country risk. They aim to make combinations of multiple risk factors (economic, political ...) in "stressful" varying characteristics and for different time horizons (short, medium and long term). Scenario results then allow investors or bankers to have a more comprehensive range of their potential gains and losses, which will influence their choice whether to launch the operation.

Country Risk Part.I

The Mexican debt crisis in 1982 which forced the country to introduce a moratorium is one of the first and most contemporary manifestations of country risk. The concept also takes full extent over the 90 years with the crisis countries. Emerging from 1997 Asian crisis, Russian crisis in 1998 etc. Indeed, given the globalization of the economy and the succession of crises due to the expansion of capital movements in the world, economic agents and financial choices for their particular investment and acquisitions, need accurate information on the assessment of risk profiles of the countries covered.

A single definition of country risk is difficult to provide to the extent that it is a composite concept. Country risk encompasses all actual future events that may affect a financial investor in the conduct of its operations in relation to a country called "at risk". The risks mentioned are related to the state of the country, regardless of the quality of the debtor or the project.

However, if the concept is difficult to define exhaustively, his analysis is far from insurmountable. Many tools and procedures are available for players to understand this risk.

First, the concept of country risk and sovereign risk are often confused. Sovereign risk is the risk for financial institutions to see the sovereign (central government, ministries, local governments and regional ...) which they have granted loans, unwilling or unable to meet its payment obligations to them. Country risk in turn has a much broader scope because there is no concept of "sovereign", the entity in question is the entire country. The two concepts are nevertheless closely related. Indeed, as part of a scoring, note the Sovereign cannot be too far from the rating of the country, the quality of the first depends on the country's environment and the decisions of the Supreme rarely without consequence on the functioning economy.

China raising up ...

China is emerging as both leading markets and rising economic power, and meeting with impressive rates of double-digit growth for several years. China's financial sector also benefits from good economic policy. countries, also following the path of openness and market liberalization in accordance with agreements signed by China to the WTO in January 2001 emerging well.

Historically, between the restructuring of agriculture, industry and the banking sector, the government, in the early 1980 gives priority to primary and secondary sectors to the detriment of the banking sector which will bear the cost of the transition economy. This position has resulted in delaying the development of banks in China and weighed on the accounts of the major institutions with bad debt rates sometimes exceeding 40%. Faced with the need for modernization of the Chinese banking, the government changed tack and have signed the WTO agreement to liberalize the banking market in 2001.
Since then, many international banks, anxious to find alternatives to growing their domestic market less dynamic, investing heavily in emerging countries and primarily in the "Middle Kingdom" which presents serious advantages …

Since January 2007, the news is full of examples of foreign investment through equity, joint ventures or acquisitions in the Chinese banks. We made especially Citigroup, which won the "Guangdong Development Bank" in front of the SG, Bank Of China 10% owned by RBS or the Construction Bank of China 9.1% owned by Bank Of America. Overall, although the role of foreign banks is negligible - they represent less than 2% of Chinese assets - their position continues to grow.

Chinese and foreigners have much to gain from the recent opening of the market (2001). Indeed, the Chinese banking sector needs foreign players to upgrade the profession and make a transfer of skills; foreign players in turn reap the benefits of Chinese growth.

However, prudential Chinese are real barriers to entry for foreign banks: capitalization of at least 1bn Yuan, exposure to a single client must not exceed 10% stake in the subsidiary and the ratio of loans / deposits do not exceed 75%.

But the stakes are: market access abysmal savings of Chinese households is worth the investment for many banks and foreign insurers. Candidates rush to the office of the CBRC (China Banking Regulatory Commission) and the Chinese newspapers that tell of six banks, want to establish subsidiaries of Chinese law. Several big names such as HSBC, Citigroup, Deutsche Bank or JP Morgan have also applied. It's a safe bet that the list will grow as and regulatory developments and market opening...

New payment methods, to configure market Part.II

Deregulation also imposed with the SEPA will work no doubt for these new products, improving competition and market dynamics. However Europe's payments, particularly heterogeneous, certainly will offer a unique business model and transposed from one country to another.

The payments market is evolving towards a model driven "co-distribution". For credit institutions, historical market leaders, the challenge is to partner with as soon as new entrants, suppliers of innovative materials. This is not only to respond to the risk of decline in the volume of commissions received, but also to offer their business customers innovative and robust solutions, and this, as soon as possible to maintain their market share. The players in the consumer credit will also fit on their revolving credit card.

Sites are consistent adaptation to provide both a business perspective (definition of responsibilities, risk management, targeting policies and pricing ...) as a point of view of information systems (changing production tools and CRM, electronic banking trade flows with partners, upgrade repositories ...) The needs are also important to provide training in the branch networks, to spread the new methods of marketing and loyalty.

Finally, the area of payment being in a phase of great change, both in terms of regulation or in terms of new offerings / technologies, some players have an attitude rather than "defensive" (including banks ...) while others may adopt a logic "offensive" to take advantage of this window of opportunity to enter the market. In all cases, regardless of the type of actor, it's being played today that the reconfiguration of the market tomorrow.

New payment methods, to configure market Part.I

There are innovative ways of payments in the market. The payment of the future just around the corner: NFC mobile phones, TPE biometric or contactless cards etc. Given the diversity of solutions, potential entrants and business models possible,

In the United States and Great Britain, stores now offer the ability to adjust by putting his finger on a biometric TPE. This device allows in particular reducing the rate of commissions charged to merchants by offering an alternative to traditional electronic payment networks (MasterCard, Visa, Amex ...). A single operator manages all the activities: Registration and scanning fingerprints, food bases CRM containing biometric markers, center management authorizations and payment instructions via electronic checks.

Asia is basically the payment by mobile phone that has developed. These are the operators themselves who are behind this revolution, like NTT, Do Como - the first Japanese operator - which now has a banking license.

Other supports innovative payments, already launched or still in study, will also put in place: contactless payment card, bank transfer by SMS, prepaid bank cards, biometric payment online ...

In Europe, experience "laboratories" abound, but no business model seems to be finalized at this point. Bids still need to mature to provide an appropriate policy mix in terms of palatability and customer profitability, particularly in arbitrating on the following:

* Choice of media and associated technologies: NFC mobile phone (with card integrated or not with the SIM card), biometric POS, RFID card reading (with or without chip), USB drives to borrow for online payments ...
* Types of payments and services available: electronic wallet, bank account debit (backed or not network card), revolving credit line, transfer, various insurances ...
* Partners in the presence and role distribution business (distribution, retention, risk management, billing and collection ...): banks, telecom operators and MVNOs, biometrics specialists, retail signs, payment networks, card manufacturers and chips, cards and managers authorization centers ...