GENERAL DESCRIPTION OF THE AJPES S.BON MODEL AND SLOVENIAN CREDIT RATING SCORES (SB)

Determining Slovenian companies' credit rating scores using the model AJPES S.BON is based on analysing financial statements and occurrence of payment default events for the entire population of Slovenian companies over a longer period of time. Payment default event is defined as the occurrence of at least one of the following events: transaction account block for 30 days without interruption, or transaction account block for 60 days with interruptions in a single year, initiation of bankruptcy, composition, liquidation or compulsory liquidation proceedings.

The credit rating scores are calculated in accordance with Basel II rules and corporate banks can use these in calculating capital requirements for credit risks (IRB approach). Based on financial statements, individual risk factors for the potential occurrence of a payment default event are analyzed (profitability, liquidity, indebtedness, activity, size, productivity and growth of business) and their contribution to the total probability of the potential occurrence of a payment default event. The AJPES S.BON model is used to calculate each company's overall probability of a payment default event occurring within the next 12 months after the date of the company's financial accounts. The sample values are calibrated with consideration to the characteristics of the Slovenian economy over a longer time period, which includes the overall macroeconomic cycle. The sample-independent or calibrated payment default probabilities are the basis for determining credit rating scores using the AJPES S.BON model.

The result are unbiased credit ratings for the entire population of Slovenian companies, which will help banks and other financial organizations assess the credit risk involving the probability of a payment default event for any Slovenian company. All other business entities will be able to use these credit rating scores as a basis for examining the ability of selected companies/business partners to meet their financial obligations.

The AJPES S.BON model classifies companies into 10 credit rating categories according to the credit risk, represented by credit rating scores ranging from SB1 to SB10. The credit rating scores are defined on a scale of probability that at least one of the different types of payment default events will occur in a specific case in the 12-month period following the date of the relevant financial statements upon which the credit rating score is based. The first 10 credit ratings (SB1 through SB10) represent categories of payers, and the credit rating SB10d represents the non-payer category. The SB10d credit rating score is assigned to companies in which a payment default event has actually occurred, regardless of the credit rating score which the company in question had before the occurrence of a payment default event.

The probability of the occurrence of a potential payment default event is lowest with the credit rating of SB1, increasing exponentially as we move towards the credit rating of SB10. The first 5 credit rating scores (SB1 through SB5) represent (in accordance with Basel II rules) investment-grade credit rating scores and credit ratings SB6 through SB10 represent speculative-grade credit ratings. In companies having a speculative-grade credit rating, the contribution of individual risk factors towards the total probability of default is higher on average than the entire population of companies.