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Country Risk Indicator

D&B’s Country Risk Indicator is referenced in the Compliance section of the Compliance Report which includes Know Your Customer (KYC) information. It provides a comparative, cross-border assessment of the risk of doing business in a country. Essentially, the indicator seeks to encapsulate the risk that countrywide factors pose to the predictability of export payments and investment returns over a time horizon of two years. The risk indicator comprises a composite index of four over-arching country risk categories described in the following table:

Country Risk Categories

Political Risk

Internal and external security situation, policy competency and consistency, and other such factors that determine whether a country fosters an enabling business environment.

Commercial Risk

The sanctity of contract, judicial competence, regulatory transparency, degree of systemic corruption, and other such factors that determine whether the business environment facilitates the conduct of commercial transactions.

Macroeconomic Risk

The inflation rate, government balance, money supply growth and all such macroeconomic factors that determine whether a country is able to deliver sustainable economic growth and a commensurate expansion in business opportunities.

External Risk

The current account balance, capital flows, foreign exchange reserves, size of external debt and all such factors that determine whether a country can generate enough foreign exchange to meet its trade and foreign investment liabilities.

The DB risk indicator is divided into seven bands, ranging from DB1 through DB7. Each band is subdivided into quartiles (a–d), with an "a" designation representing slightly less risk than a "b" designation, and so on. Only the DB7 indicator is not divided into quartiles.

Indicator Meaning Explanation

DB1: - Lowest risk

Lowest degree of uncertainty associated with expected returns, such as export payments, and foreign debt and equity servicing.

DB2: - Low risk

Low degree of uncertainty associated with expected returns. However, country-wide factors may result in higher volatility of returns at a future date.

DB3: - Slight risk

Enough uncertainty over expected returns to warrant close monitoring of country risk. Customers should actively manage their risk exposures.

DB4: - Moderate risk

Significant uncertainty over expected returns. Risk-averse customers are advised to protect against potential losses.

DB5: - High risk

Considerable uncertainty associated with expected returns. Businesses are advised to limit their exposure and/or select high-return transactions only.

DB6: - Very high risk

Expected returns subject to large degree of volatility. A very high expected return is required to compensate for the additional risk or the cost of hedging such risk.

DB7: - Highest risk

Returns are almost impossible to predict with any accuracy. Business infrastructure has, in effect, broken down.

The DB risk indicator is supplemented with a ratings trend, which encapsulates whether the risk environment in a country is improving, deteriorating or stable:

Ratings Trend

Improving

Indicates that the country’s overall risk profile is improving as a result of favourable political, commercial, economic and/or external developments.

Deteriorating

Indicates that the country’s overall risk profile is deteriorating owing to adverse political, commercial, economic and/or external developments.

Stable

Indicates that the country’s overall risk outlook has not changed appreciably, even though some minor changes to its political, commercial, macroeconomic, and/or external risk environment may have occurred.