Compiling a credit rating is a common international practice that helps to assess the feasibility of issuers' debt obligations. The credit rating is compiled by independent organizations whose purpose is to assess the ability of banks to fulfill their financial obligations.
Bank rating - why is it needed?
Credit rating today is the most reliable source regarding the work of financial institutions. The data presented in it are taken into account not only by depositors, but also the personnel of a particular bank. A general assessment of the financial and credit system in the country affects its position in the international credit rating, which is compiled by international credit agencies.
When considering such organizations, for a start it is necessary to mention that their data are of particular importance in the global economy, since they are the indicators of the reliability and stability of a particular financial market. It is easy to assume that lenders or investors with significant experience will not want to work in low credit rating markets in order to prevent financial risks.
Currently, several major credit agencies operate on the market, whose opinion is authoritative on almost all financial sites in the world. Let's look at the two largest of them - the credit ratings of Moody’s and Standard & Poor's.
Moody's Credit Rating
This rating agency is rightfully considered one of the most influential in the world, which is why it is quoted by all the most popular financial publications today when it comes to new potential benefits and risks. The agency has been operating in the market for quite some time. It has gained undeniable authority on the part of financial workers. Moody’s regularly publishes findings on the creditworthiness of issuers, as well as on the value of their securities. The agency's field of activity covers not only banks, but also other types of enterprises, as well as state institutions and the state as a whole.
Moody’s experts are working on assessing the financial situation in the credit market in more than a hundred states. The experts of the company, which is the main subsidiary of Investors Service Moody’s, make up two ratings. The most important of them is the global credit rating, which is also called international. The key indicator that can be seen on this list is the mathematical expectation of losses, which shows the probability of default and the degree of devaluation of the state currency in this case. In addition, there is a national rating, which examines the creditworthiness of issuers in the limit of a particular country. These data cannot be compared with other countries.
Rating agency Standart & Poor's
S&P is another internationally recognized agency that examines and evaluates the creditworthiness of issuers worldwide. The company, like Moody’s, is working on comparing the international rating, which includes large enterprises, banks and states. A high position in the rating guarantees the issuer a large number of investors, as well as a good reputation in the financial market.
National Rating Agency
The credit ratings of Russian banks are compiled by the NRA, while their scheme for calculating positions in the rating has much in common with Moody’s.The list of data that this agency uses to assess creditworthiness includes such factors as the economic situation in the country for a certain period of time, as well as the financial activity of the bank itself (liquidity of assets, their quality, profit, market profitability).
Rating classification
The following credit ratings of banks are available:
- The most reliable financial institutions receive an AAA credit rating. At the same time, subcategories of reliability are also distinguished, where A + is the first level of reliability, A is the second level and A- is the third. In general, having received any of these assessments from an independent NRA institution, the bank is considered reliable for depositors.
- The following is an assessment of the BBB, which is received by banks with an average level of reliability. Accordingly, financial institutions with even lower credit ratings are rated BB and B.
- Assessment of the SS indicates that the bank is highly not recommended to depositors.
- Rating D is assigned only to those financial institutions that are currently at risk of default.
Separately, it is worth talking about the classification, which analyzes the financial stability of banks. In accordance with this indicator, financial institutions, according to the NRA, are usually divided into:
• largest;
• large;
• medium;
• small.
Banks that operate at the expense of foreign capital are allocated as a separate group.
Who else can value banks?
Among other authoritative ratings, which it makes sense to trust, one can note the rating of the Kommersant-money newspaper, as well as the Expert magazine. In addition to the lists of banks, they also compile a list of the most reliable insurance companies and the largest and most influential corporations in the world. As for the rating of banks, the principle of their compilation is somewhat different in these two editions. In particular, the Expert magazine makes a greater emphasis on the financial statements of institutions (income, expenses, operations with securities, etc.).
In Russia, in addition to rating agencies that assess the state of affairs throughout the country, there are regional ratings that determine the creditworthiness of local banking institutions.
Credit rating of Russia
Last year, Moody's credit agency left Russia’s international credit rating at the same level, but the outlook for the further development of the Russian financial market is negative. According to Moody's, the Russian national currency is now at the peak of its value, after which its relaxation will follow. But at the same time, the company noted positive aspects, namely, the stability of the Russian economy due to the changes made in the country's budget.
The stability of the economic situation was also greatly affected by rising oil prices. The agency reports that in the future their new decline is possible, therefore the forecast is negative due to a possible budget reduction. Experts also note that budget consolidation reforms are not very actively introduced in Russia.
The Central Bank said that in the near future they will focus only on state credit ratings, not taking into account the credit ratings of international agencies.
