1. A Decision Model Proposal for Credit Risk Rating of Companies Gökhan GENCER

2. Introduction Loans are a key element in economy Loans are risky Analyzing risk is essential To analyze the risk a method is required Methods are controversial

3. Scope Non-bank & Non-financial firms Small to Medium Enterprises & Corporate Enterprises Probability of Default as defined on BASEL II Accord Probability of default Exposure at default Loss given default Importance weight of each criterion

4. Original Criteria Derived From the Literature Return on Assets Return on Equity Net Profit Margin Deadline of Receivable Deadline of Payables Assets Turnover Acid Liquidity Market Share Firm Size Cash Liquidity Current Liabilities to Working Capital Solvency Ratio Leverage Ratio Financial Expenses Coverage Efficiency Cash Conversion Cycle

5. Original Criteria Derived From the Literature Macro-Strategic Capability Decision Making Ability Organizational Capability Level of Standardization Corporate Brand Recognition Coordination Capacity Relationship with Government Relationship with Financial Sector Tangible Collateral Growth Opportunities

6. Experts

7. Experts advised the following to be added: Buyer/Seller Concentration Quality of Other Creditors Gearing Ratio Liabilities to Sales Ratio Current Ratio Competitive Analysis Foreign Currency Risk Market Diversification Age of the Company Track Record Successor Risk Sectors Properties Sector Diversification Sectors Position and Direction

8. Decision Makers Advices About Criteria The Decision Makers advised following to be removed: Assets Turnover Growth Opportunities Solvency Ratio Decision makers advised to add Quality of auditing Priority in the business group as a factor of Corporate Governance.

9. Decision Makers Advices About Criteria The Decision Makers advised to divide Relationship with Government into Reputational Risk and Morality Country Based Risk Decision makers advised to change Relationship with Financial Sector as Quality of Other Creditors Cash Conversion Cycle as Stock Cycling Rate

10. Hierarchic Model

11. Survey

12. Pairwise Comparison Judgements Decision Makers ZiraatDarumaAkbankGarantiHSBCIFCUBSFinansbank ComparisonsAhmet KeskinSelçuk KeremoğluDerya ErgörenSerkan Pakİrem İnceEmre SaracoğluYeşim SümerkanOğuzhan DumanlıAverage Current State 10.140.170.140.20 0.140.130.330.17 24.00 7.005.004.005.000.131.002.47 37.000.505.006.004.005.008.003.003.87 40.200.507.000.173.000.200.140.200.46 50.331.009.001.003.007.001.005.002.05 Firm's Properties 65.000.330.140.20 1.00 0.140.44 70.506.000.110.205.001.00 0.87 81.000.330.146.000.141.000.140.330.46 93.008.000.110.130.141.006.000.330.75 100.332.009.007.00 1.00 0.331.77 112.000.330.118.000.201.000.130.330.51 120.252.008.000.135.001.007.003.001.64 Exterior Condition s 130.333.000.14 3.005.007.00 1.40 144.001.008.007.003.000.338.000.202.09 155.000.339.007.000.20 0.140.200.77 160.502.000.148.005.001.000.141.000.97 Profitability 173.005.000.136.005.001.000.133.001.46 180.332.008.007.006.001.008.003.002.93 190.331.000.145.000.201.000.130.330.46 203.00 9.000.140.331.000.143.001.06 210.332.000.137.005.001.007.000.331.27 Cycles 221.003.008.003.001.00 0.130.201.08 231.000.508.003.001.00 0.131.001.05 240.332.000.130.331.00 8.005.001.01 Financial Structure 253.00 0.131.000.140.331.000.330.60 263.005.008.000.330.141.004.003.001.70 274.005.000.145.000.335.000.145.001.43 280.251.000.130.200.331.00 0.200.38 293.000.200.140.203.000.330.201.000.49 304.003.006.00 7.001.000.143.002.45 Credit Risk Analysis 311.000.148.001.000.200.14 0.330.45 321.000.506.000.143.005.000.141.000.99 335.008.00 5.00 1.008.005.004.88 340.170.330.140.170.331.00 0.33 356.007.008.005.003.00 8.005.005.28 364.000.500.141.003.001.000.170.330.68

13. Priorities of Criteria Results in the order of criteriaResults in the order of importance A1 Market Share 5.9% D3 Net Profit Margin 10.6% A2 Quality of Other Creditors 0.9% F4 Leverage Ratio 10.4% A3 Market Diversification 2.1% A4 Buyer/Seller Concentration 7.4% A4 Buyer/Seller Concentration 7.4% F3 Cash Liquidity 6.8% A5 Sector Diversification 3.1% A1 Market Share 5.9% B1 Firm Size 1.8% F1 Current Ratio 5.8% B2 Age of the Company 1.0% D2 ROE 4.4% B3 Corporate Governance 1.1% F5 Gearing Ratio 4.2% B4 Succeser Risk 0.6% D4 Efficiency 4.0% B5 Reputational Risk and Morality 0.6% F2 Acid Liquidity 3.8% B6 Track Record 1.3% D1 ROA 3.7% B7 Tangible Collateral 0.9% D5 Financial Expenses Coverage 3.5% C1 Country Based 1.2% A5 Sector Diversification 3.1% C2 Competitive Analysis 1.3% E3 Deadline of Payables 2.5% C3 Sector's Position and Direction 2.3% E2 Dadline of Receivables 2.5% C4 Foreign Currency Risk 1.5% E1 Stock Cycling Rate 2.4% D1 ROA 3.7% C3 Sector's Position and Direction 2.3% D2 ROE 4.4% F6 Liabilities to Sales Ratio 2.2% D3 Net Profit Margin 10.6% A3 Market Diversification 2.1% D4 Efficiency 4.0% B1 Firm Size 1.8% D5 Financial Expenses Coverage 3.5% C4 Foreign Currency Risk 1.5% E1 Stock Cycling Rate 2.4% C2 Competitive Analysis 1.3% E2 Dadline of Receivables 2.5% B6 Track Record 1.3% E3 Deadline of Payables 2.5% C1 Country Based 1.2% F1 Current Ratio 5.8% B3 Corporate Governance 1.1% F2 Acid Liquidity 3.8% B2 Age of the Company 1.0% F3 Cash Liquidity 6.8% A2 Quality of Other Creditors 0.9% F4 Leverage Ratio 10.4% B7 Tangible Collateral 0.9% F5 Gearing Ratio 4.2% B4 Succeser Risk 0.6% F6 Liabilities to Sales Ratio 2.2% B5 Reputational Risk and Morality 0.6%

14. Suggestions This model can be used in a greater project that contains: Exposure at Default Loss Given Default The results of this model can be used by companies,especially by SMEs. These results can be used in a credit risk rating process for both the rating organizations and the banks. The resulting values are a crucial input for the potential academic research