Approaches of PD Model Development for Specific Industries Based on the International Rating Agencies’ Ratings

The issue of acquiring debt financing comes up before companies, and how strategically balanced the decision is will affect the stability of the company and the level of credit risk in the future. Due to the recent instability on the financial markets, the banking system organizations tend to shift and increase the credit quality requirements for the borrowers. In this regard, it is vital to know what you need to pay attention to in order to minimize credit risk and reduce the default probability. However, the issue of low default portfolios for high-rating-grade companies is not widely covered in scientific literature. The purpose of the proposed research project is to develop a comprehensive approach for probability default modelling based on international credit ratings, taking into account industry specifics. Our methodology sets confidence intervals for the probability defaults of each rating grade. The probability default range can be corrected by setting the applicable confidence level. The research is based on data gained from Thompson Reuters terminal and quarterly reports of companies of several industries including oil & gas, retail, chemicals, telecom and metallurgy.