Review of subnational credit rating methodologies and their applicability in South Africa

[摘要] The objectives of the research study are to review existing subnational credit rating methodologiesand their applicability in the South African context, to develop the quantitative parts of creditrating methodologies for two provincial departments (Department of Health and Department ofEducation) that best predict future payment behaviour, to test the appropriateness of the proposedmethodologies and to construct the datasets needed.The literature study includes background information regarding the uniqueness of South Africa'sprovinces and credit rating methodologies in general. This is followed by information on subnationalcredit rating methodologies, including a review of existing subnational credit rating methodologiesand an assessment of the applicability of the information provided in the South African context.Lastly, the applicable laws and regulations within the South African regulatory framework are provided.The knowledge gained from the literature study is applied to the data that have been collectedto predict the two departments' future payment behaviour. Linear regression modelling is usedto identify the factors that best predict future payment behaviour and to assign weights to theidentified factors in a scientific manner. The resulting payment behaviour models can be viewed asthe quantitative part of the credit ratings. This is followed by a discussion on further investigationsto improve the models.The developed models (both the simple and the advanced models) are tested with regard to predictionaccuracies using RAG (Red, Amber or Green) statuses. This is followed by recommendationsregarding future model usage that conclude that the department-specific models outperform thegeneric models in terms of prediction accuracies.

[发布机构] North-West University