“One American journalist once said that if earlier it was necessary to introduce tanks, now it is enough to lower the state’s rating, and this will be almost the same blow to the country” (Pavel Samiev, Deputy General Director of the Expert RA rating agency)
What are rating agencies?
Rating agencies are commercial organizations that evaluate solvency, debt obligations, and other important financial indicators issuers. They present their assessment as credit ratings, which are assigned to organizations, regions, countries depending on their creditworthiness. The main purpose of such ratings is to provide an assessment of the likelihood to potential investors/creditors that the issuer will/will not fulfill its obligations.
The most famous and authoritative rating agencies in the world are American agencies Standard & Poor's, Moody's, and Fitch Ratings. Their history goes back about 100 years. Russian ratings begin their history in the 90s and the largest are the Expert RA Rating Agency and NRA (National Rating Agency).
Agency credit ratings have a similar concept, but different designations and calculation methods. Basically the ratings are indicated with Latin letters in decreasing order of reliability level from A to C (for some agencies to D).
Rating agencies are accredited by the Ministry of Finance of the Russian Federation. In total, there are 8 officially accredited agencies in Russia, 3 foreign: Standard and Poor's, Moody's, and Fitch Ratings, one joint: "RA MOODS INTERFAX" and 4 Russian agencies: "National Rating Agency", "Expert RA", " RA "Analysis, Consulting and Marketing", "Rus-Rating".
The advantage of foreign agencies is their impartiality and greater authority. The advantage of Russian agencies is their efficiency; seeing the situation from the inside, they can react faster and change the rating of Russian companies. Western agencies typically look at IFRS, which are published quarterly/annually, while Russian agencies look at some issuers' reports on a monthly basis.
How can a private investor use information from rating agencies?
It should be remembered that credit ratings are not a direct recommendation for buying, selling valuable papers. They reflect only one of the aspects necessary to make an investment decision, namely, creditworthiness. Companies with a maximum AAA rating may have problems and may default. However, if among companies with an AAA rating there will be only a few such cases, then companies with pre-default ratings will have hundreds and thousands of such cases of bankruptcy.
Rating agencies continue to have a major influence on financial markets. For example, Standard and Poor's decision to downgrade the US credit rating in August 2011 from the maximum AAA to AA+ caused panic on stock exchanges and a collapse in quotes around the world.
Follow the latest news from leading rating agencies on our website.
Rating agency- a commercial organization engaged in assessing the solvency of issuers, debt obligations, quality corporate governance, quality of asset management, etc. The most famous product of rating agencies is an assessment of solvency - credit rating.
It reflects the risk of non-payment on a debt obligation and affects the interest rate, the cost and profitability of debt obligations. Moreover, a higher rating corresponds to a lower risk of non-payment.
Solvency- the ability of an economic entity to timely fulfill monetary obligations stipulated by law or contract, at the expense of the monetary resources at its disposal.
Insolvency- the inability of a business entity to fulfill, after the established deadline for payment, monetary obligations to the creditor. Insolvency can lead to bankruptcy.
The most famous World rating agencies
Russian rating agencies
"Expert RA".
Moody's Interfax Rating Agency
(a joint venture between Moody’s Investors Service and Interfax)
Leading world RAs:
Fitch Ratings is an international corporation known primarily as a rating agency.
Our mission is to provide independent and forward-looking credit assessments, research and data to the global credit markets.
Fitch is a group that includes:
Fitch Solutions is the distribution arm of Fitch Ratings products and services
Algorithmics is a global leader in corporate risk management solutions
FitchTraining specializes in credit and corporate finance training.
Owners and management
The Fitch Group is majority owned by Fimalac S.A. (headquartered in Paris
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Fitch Ratings was founded in New York by John Knowles Fitch on December 24, 1913. as Fitch Publishing Company.
In April 2000, Fitch acquired Duff & Phelps Credit Rating Co. (Chicago headquarters). Later that year, Fitch bought Thomson BankWatch.
In October 2006, Fitch Ratings founded Derivative Fitch, the first dedicated credit rating agency to provide ratings, research and assessments to the credit derivatives market to meet the needs of the credit derivatives market.
Http://www.Fitchratings.Ru/
Moody's(Russian) Moody's) - international rating agency; full name - Moody's Investors Service.
Moody's is a subsidiary of Moody's Corporation. Engaged in credit ratings, research and risk analysis.
The agency employs more than 4,500 experts in 26 countries.
Since the first bond rating definitions were developed in 1909, the number of Moody's ratings has grown significantly. Today Moody's operates 32 systems, and their number is growing every year.
Moody’s is able to fully satisfy the needs of its clients from Russia and the CIS countries due to its experience of working at the global level and at the same time knowledge of the markets of Russia and the CIS countries.
The team consists of highly qualified and experienced specialists who perform their work at the highest professional level.
Moody's assigns ratings to the debt obligations of banks, corporations, insurance companies, trust funds, regional and local governments, states, and international entities. Moody's also assigns structured finance ratings.
With international capital markets more dependent on credit ratings than ever before, Moody's ratings provide significant benefits and opportunities for both issuers and investors.
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In Russia and the CIS, Moody's agency is represented by the Russian branch of Moody's Investors Service Ltd., Russian Branch, which assigns Moody's ratings on a global scale, by Moody's Eastern Europe (MEE), as well as by the Rating Agency " Moody's Interfax Rating Agency - MIRA), which assigns credit ratings according to national scale.
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The majority shareholder of RAMI is Moody's agency, and the minority shareholder is Interfax Information Services Group.
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Moody's Corporation (NYSE: MCO), the parent company of Moody's Credit Ratings Agency, which provides credit ratings and research covering debt instruments and securities, Moody's Analytics, which offers advanced software, advisory services and research for credit and economic analysis and financial management risks. Moody's is a corporation that reported revenues of $2.3 billion in 2011, employs approximately 6,100 people worldwide and maintains a presence in 28 countries.
http :// www . moodys . com / pages / default _ ee . aspx
What is a credit rating?
Agency analysts, based on many sources of information, compile credit ratings , providing the issuer of debt obligations with a unique assessment of solvency. Those. a credit rating is this assessment, “compressed” into a short letter expression with a certain financial meaning. The higher the credit rating, the more reliable the investment object, but also the lower its potential return on debt instruments (bills,).
World rating agencies
In the global market today there are three generally recognized rating agencies, which cover about 95% of the market:
Standard & Poor's
Moody's Agency
Fitch Agency
international, by which debt issuers are compared with other countries or foreign companies;
national, which compares issuers within one country
Depending on the term of the creditworthiness forecast, long-term ratings (long term, for a period of more than a year) and short-term ratings (less than a year) are distinguished. The latter is associated with the long-term and changes (increases or decreases) synchronously with it.
And finally, there are types of ratings in foreign (foreign) and local national (local) currencies. They may differ for one issuer, if they exist different conditions fulfillment of obligations in national currency relative to foreign ones.
S&P agency credit rating
The rating value ranges from the best "AAA" to the worst "D". “+” or “-” (plus/minus) signs can be added to the letter designation from “AA” to “CCC”. They reflect a slightly better or slightly worse position of the issuer within one rating position. For example, an issuer with an AA+ rating is slightly more reliable for an investor than an issuer with an AA rating. Accordingly, the issuer “AA-” is less reliable for investments than “AA”.
positive (Positive) the rating value can be increased;
negative (Negative) - reduced;
stable – the value most likely will not change;
Developing – the value can be either increased or decreased.
Forecasting horizon - from 6 months to 2 years.
S&P rating scale
investment category (stable, successful issuers or securities);
speculative (riskier group of issuers); the ratings of this group are sometimes called "junk".
| S&P rating | Description |
| Investment category | |
| AAA (A-1) | Highest rating. Characterizes the issuer’s greatest ability to fulfill financial obligations |
| AA (A-2) | High ability to repay your debt |
| A (A-3) | Moderately high ability to repay your debt, but at the same time there is an increased dependence on unfavorable economic conditions and other negative changes in the external environment |
| BBB (B) | Sufficient ability to repay financial obligations, but high sensitivity to unfavorable economic conditions |
| BBB- (B) | Lowest rating in this category |
| Speculative category | |
| BB+ (B) | Highest rating in this category |
| BB (B) | The issuer is slightly vulnerable in the short term, higher dependence on negative changes in the economic, financial and business spheres |
| B (B) | Even greater vulnerability to negative changes, but for now there is an opportunity to pay off your debt |
| CCC (C) | High exposure to credit risks, debt can be repaid if there is a favorable economic, financial and business environment |
| SS (C) | Very high exposure to credit risks |
| C (C) | The issuer is in the process of bankruptcy, but fulfills its financial obligations |
| D | Default declared |
Alphabetic and alphanumeric (A-1, A-2, A-3, etc.) designations in brackets refer to the short-term rating scale. Instead of the last two lines, other designations may be indicated:
R - due to an unfavorable financial condition, the issuer is under the supervision of regulators, who may decide in favor of fulfilling one obligation over others;
SD - the issuer cannot repay one obligation or category of obligations, but repays others;
D – the issuer is unable to fulfill all or virtually all obligations.
How to find out the rating calculated by S&P?
On the website of this agency:
http://www.standardandpoors.com/home/en/us ― English version;
http://www.standardandpoors.com/home/ru/ru ― Russian version
On the main page on the left there is a search bar, under which you need to select a search option:
name of the country or organization (“entity”);
security ticker (“ticker”);
security code (CUSIP, CINS, ISIN).
After this, you need to enter the required name in the search bar and select the one you are looking for from the proposed pop-up options. If the inscription “NR” appears on the issuer, this means that the rating was not assigned. However, the first time you contact us, the system will require registration:
After completing the easy procedure and receiving a confirmation letter to the specified email address, you can enter the name of the organization you are interested in in the search window (field “Find a Rating...”). If we perform a search for the broker Interactive Brokers, we will see the following results for today:
Local Currenty LT and ST denote the broker's long-term and short-term ratings in local currency, while Local Currenty LT and ST denote the same ratings in foreign currency. The table shows that the broker is highly reliable with a slightly higher short-term rating, as well as a stable long-term forecast (penultimate column of CreditWatch/Outlook), made at the end of 2014. And here are the data for today for the Russian Federation:
Quite expectedly, the country’s rating in the national currency (rubles) turns out to be noticeably higher than in foreign currency (primarily in dollars). In addition, it is clear that, in the opinion of the agency, the creditworthiness of the broker discussed earlier is higher than that of Russia as a whole - if we choose the dollar as the common denominator. We periodically raise the question of the political bias of such ratings - personally, I consider them to be quite objective and based both on historical data (remember the default of 1998 or the recent December 2014) and on the real state of affairs (Russia’s dependence on oil, see).
Moody's credit rating
The numbers 1,2,3 can be added to categories from “Aa” to “Caa”. A unit “says” that the issuer occupies the top line in its rating category (for example, “Aa”). Two is in the middle. Three is at the bottom of the rating category. Such a rating is designated as follows: for example, “Aa1”, “B2”, “Caa3”.
In addition to calculating the value, the agency also gives a long-term and short-term rating forecast - as does S&P.
| Moody's rating | Description |
| Investment category | |
| Ahh (P-1) | Most high level reliability. Lowest credit risks |
| Aa (P-1) | High reliability, very low credit risks |
| A (P-1 or P-2) | Reliability level is above average, credit risks are low |
| Vaa (P3) | Average reliability, moderate credit risks |
| Speculative category | |
| Va | Reliability level is below average, significant credit risks |
| IN | Low reliability, high credit risks |
| Saa | Reliability level is very low, credit risks are very high |
| Sa | The issuer has declared default or is close to it, but there is a possibility of fulfilling financial obligations |
| WITH | Default, lowest rating |
The short-term rating, except for the undefined NP (refusal to assess short-term creditworthiness), can vary from P-1 (Prime-1, excellent ability to repay short-term debts) to P-3 (Prime-3, acceptable ability to repay short-term debts). In relation to the Moody's rating table above for long-term obligations, all Prime values given fall into the investment category, i.e. with an issuer rating not lower than Baa.
How can I find out the rating calculated by Moody's?
https://www.moodys.com/ - English version;
https://www.moodys.com/pages/default_ee.aspx - version in Russian
The search field is located on the main page of the site in the upper left part. In this field you must enter the name of the country or company you are looking for, or the ticker symbol of the security. After this, a drop-down list of the most suitable options. By clicking on the desired one, we are automatically moved to the page with the ratings of the required issuer. The very first in the generated list is the long-term rating in foreign currency.
If an agency user visits the site for the first time, to search for a rating, as in the case of S&P, it will be necessary to register once, including checking the “I agree with the terms of use of the site” checkbox. I was able to do this only by scrolling through the agreement to the end. After filling out a few lines and confirming your registration by email (by clicking on the link), you will be automatically redirected to the Moody’s website using your login. If this does not happen, then the login should be the specified email. Let's look for the rating of the Russian Federation:
It can be seen from this that Russia’s long-term rating for obligations in foreign currency is designated as Ba1, i.e. stands right on the border between investment and speculative categories. The short-term rating has not been determined, the specified forecast is negative, which is quite at odds with the stable forecast from S&P (although both were made in 2016 with a difference of about six months). In summary, despite the many evaluation parameters, the ratings are relatively subjective. However, at Moody’s, a convenient indicator is to view the rating history of the issuer, for which you need to switch to the “Rating” tab:
Here you can see how, having dropped to the level of default in 1998, Russia’s long-term rating in national currency began to grow from 2000 to 2009, which was caused by an increase in oil prices. Its stabilization at high levels by 2010 also stopped Russia’s rating, and the fall in the price of a barrel together with the devaluation of the ruble in December 2014 led to a slight downgrade in the rating. “Domestic” denotes the domestic rating in national currency, “Foreign” - in foreign currency. “Senior Unsecured” can be translated as senior unsecured debt obligations: in domestic or foreign currency, respectively. In total, you can select and view 5 types of ratings at once - but they are close to 100%, so I will limit myself to what is shown in the picture. Pressing " Issuer Outlook" you can also see the history of the company's forecasts for the future issuer rating. In the case of foreign issuers, the English version may sometimes be more productive.
Credit rating from Fitch Ratings
The rating scale of this agency is similar to the S&P scale and has an alphabetic designation. A "+" or "-" sign is added to ratings from "AA" to "B". Information about a specific issuer's rating can be found on the following sites (after registration):
https://www.fitchratings.com/site/home - English version
http://www.fitchratings.ru/ru/ — Russian version
Let's choose the Russian version. As in previous cases, you must go through the formal registration procedure by clicking on “Create Account”. There are several more fields to fill out here than in previous systems, but they are not difficult to understand - the data is not checked, so you can write any phone numbers and home address (unlike the email to which confirmation will be sent). Having filled out everything and put two checkmarks below, we receive a confirmation letter in our mailbox and click on the link in it. After which you can return to the main page and enter your username and password in the upper right corner. After logging into the system, let’s try to find Russia’s rating there by entering “russia” - unlike S&P and Moody’s, there are no pop-up tips here yet. We get the following results:
In fact, the Fitch agency is the only one of all three that allows you to conduct searches in Russian - i.e. in the search bar you can also type “ Russian Federation" Although to search for ratings of foreign issuers it is better to use English version site (the item “Issuers” there will correspond to “ ENTITIES" - but in general, according to my observations, of all three systems, this is the most capricious in displaying information). Click on the lowest issuer:
As can be seen from the table, the rating description is in Russian. The first two lines indicate obligations in foreign currency; the first line can be considered the most important for assessing the issuer. By clicking on “Rating history” at the bottom right, you can see the history of rating assigned to the issuer (similar to Moody’s, only there the history is presented in the form of a graph). The issuer's forecast is indicated as a colored icon to the right of the rating value:
Those. Fitch has a stable forecast for Russia today. Letter designations can be deciphered as follows:
| Fitch rating | Description |
| Investment category | |
| AAA (F1) | Highest level of creditworthiness |
| AA (F1) | Ability to meet your financial obligations to a very high level |
| A (F1) | High ability to fulfill financial obligations, but at the same time there is an increased dependence on unfavorable economic conditions and other negative changes in the external environment |
| BBB (F2 or F3) | Adequate ability to meet financial obligations, but adverse economic conditions or business environment may reduce this ability |
| Speculative category | |
| BB (B) | Increased sensitivity to default risk, especially when economic conditions and the business environment change negatively |
| B (B) | There is a significant risk of default, but there is some margin of safety. Payments are still being made, but this capacity is vulnerable if economic conditions and the business environment deteriorate |
| CCC (C) | Real possibility of default, significant credit risk |
| SS (C) | Very high level credit risk, default is likely |
| C (C) | Default is imminent or imminent, exceptionally high level of credit risk |
| RD (RD) | Limited default - it has been committed on financial obligations, but the issuer is not yet in the process of bankruptcy |
| D (D) | Default |
In parentheses, as before, the short-term rating is indicated.
Comparison of world agency ratings
The three most popular global agencies that assign their ratings were discussed above. The importance of this action can hardly be overestimated - millions of investors and multi-billion-dollar capital are guided by them. And although agency data may differ in estimates, and especially in forecasts, the differences with respect to large issuers are almost never significant. At the end of the article, I present a table of correspondence between the ratings of all three agencies relative to each other:
Today we present the rating... of the world's largest rating agencies. And what? They assign ratings, right? So our experts decided to make a ranking of representatives of this business segment. As a result of analysis and evaluation, we were able to select 15 companies with the largest customer base. The predominant agencies are from the USA - as many as six companies (including one “joint venture” between the USA and the UK); two organizations from Japan, and one more representative each from Canada, China, India, Kuwait, Russia and Ukraine. The S&P agency took first place in the ranking, having managed to attract 2,682 clients from all over the world. And the largest agency in the Russian Federation, Expert RA, took penultimate, 14th place, with an indicator of 350 clients. True, the ratings of this company, as a rule, are quoted only in the Russian Federation, and even in Kazakhstan (where Expert’s subsidiary is located), therefore the “weight” of the client base, if such an indicator can be applied to the quality of the customer portfolio, is not comparable with the leaders. From now on, we will annually rank rating agencies, but we will expand the number of criteria: we will analyze not only the number of clients, but also their quality, and the total assets of the client base.
| № | Company | Head Office Location | Comments | Number of clients |
| 1 | Standard & Poor's | United States, New York | A subsidiary of McGraw-Hill Corporation engaged in financial market research. The company belongs to the three most influential international rating agencies. S&P is also known as the creator and editor of the American stock index S&P 500 and the Australian S&P 200. | 2 682 |
| 2 | Moody's | United States | International rating agency Moody's Investors Service. Moody's is a subsidiary of Moody's Corporation. Engaged in credit ratings, research and risk analysis. | 2 370 |
| 3 | Fitch Ratings | Dual-headquartered U.S./UK | An international corporation known primarily as a rating agency. Our mission is to provide independent and forward-looking credit assessments, research and data to the global credit markets. | 1 804 |
| 4 | A.M. Best | United States | Rating and information Agency with more than 100 years of history. The company was founded in 1899 by Alfred M. Best. Offices are located in the United States, Great Britain and Hong Kong. The main clients are large insurance companies. | 869 |
| 5 | DBRS (Dominion Bond Rating Service) | Canada | Founded in 1976, DBRS is an internationally recognized agency that evaluates clients as quickly as possible to assign an appropriate rating. The main clients are: financial institutions, legal entities, government bodies and structured finance arrangers in North America, Europe, Australia and South America. The head office is located in Toronto; representative offices in New York, Chicago and London. DBRS is the largest among the few independent rating agencies in the world. | 818 |
| 6 | Japan Credit Rating Agency | Japan, Tokyo | The largest agency in Japan that assigns ratings to long-term and short-term investments; conducts research on domestic and foreign markets, economic sectors, including, focusing on political situation region under study. The research results and ratings of the Japanese Credit Rating Agency are quoted and published with great pleasure by thematic media around the world. | 794 |
| 7 | Rating and Investment Info. | Japan, Tokyo | The second largest credit and investment risk assessment company in Japan. The abbreviated name is "R&I". | 710 |
| 8 | Egan-Jones Ratings | United States | Egan-Jones provides long-term investment risk advice to conservative institutional investors. Egan-Jones' forecasts have repeatedly helped clients identify credit risks in the early stages of investing. | 683 |
| 9 | Morningstar Credit Ratings | United States, Chicago | Rating agency in the USA. Specializes in collecting and analyzing information about investment funds. The forecasts of this agency are often used by the media, incl. CNN, New York Times, Wall Street Journal, Money, Yahoo.com, SmartMoney.com, YavTeme.ru. Offices: Australia, Canada, China, France, Germany, Hong Kong, Italy, Netherlands, Norway, Spain, UK, Switzerland. | 659 |
| 10 | Baycorp Advantage | Australia | The largest credit history agency in New Zealand, established in 1956, and since 1999 it has confidently occupied the first position in terms of the number of clients in Australia. The agency also provides credit reporting assessment, credit scoring, and marketing services. | 612 |
| 11 | Dagong Global Credit Rating | People's Republic of China | Dagong Global is a specialized credit rating agency in China. Organized in 1994 to analyze credit and investment risks at the suggestion of the management of the People's Bank of China. Research by this agency significantly influences the credit and economic policies of the PRC; Dagong has all the licenses and permits provided by the Chinese government and is official company, which provides credit rating services for all bond issuers in China. |
576 |
| 12 | CIBIL | India | Largest credit bureau in India. Contains information about credit history commercial and consumer lending to borrowers. Authorized partners have access to CIBIL information. The result of the data cut allows you to objectively assess the credit policy of a particular financial institution, which is used to assign the corresponding rating points. | 491 |
| 13 | Capital Standards Rating (CSR) | Kuwait | The largest rating agency in the Middle East. Ratings from this agency are rarely assigned to structures that are not present in a given geographic region. | 407 |
| 14 | Expert RA | Russia | The largest rating agency in Russia, for the first time included in the list of the largest in the world, and immediately took not the last place. Created in 1997, before the economic crisis in the Russian Federation. It is a part of the Expert media holding. As a rule, Russian credit institutions that are not included in the top hundred in terms of assets, for which the services of foreign agencies turn out to be expensive, turn to the agency’s services. | 350 |
| 15 | Credo line | Ukraine | Credo Line is the only and largest rating agency in Ukraine. Assignment of short-term and long-term credit ratings to importing companies from the CIS and of Eastern Europe- the main activity of Credo Line. Specialization: foreign economic activity and trade finance. | 167 |
International rating agencies
International rating agencies occupy a unique place in the global financial infrastructure. By publishing information about the reliability of securities, companies and governments, they play the role of critical intermediaries between borrowers and lenders in global financial markets.
International rating agencies are international commercial organizations involved in assessing the creditworthiness of issuers, debt obligations, corporate governance and ranking them according to certain indicators. These are financial intermediaries specializing in the formation of a rating system and the dissemination of analytical information.
Rating systems include objects, subjects, as well as a rating mechanism. The objects of rating assessments are issuers, borrowers, securities, countries. The subjects of the rating process are international and national rating agencies, independent institutions and institutions, funds mass media, compiling and publishing ratings. Consumers of rating services are investors, lenders, borrowers, issuers, government agencies at the international and national levels.
Conclusion on overall creditworthiness legal entity differs from the credit rating of an individual issue. The methods used in compiling ratings are classical statistical techniques: time series, averages, indices, relative values, ranking, extrapolation, balance method.
Under credit issue rating Standard & Poor's specialists (S&P) mean “a current assessment of the creditworthiness of the issuer with respect to a particular financial liability, a particular type of financial liability, or a particular financial project.”
In most cases, only the credit rating is public, and it is on its basis that rating users make economic decisions.
The rating report includes justification assigned credit rating and proves that the credit rating adequately reflects the borrower's ability to fulfill its obligations to creditors. The rating report is most often not available to a wide range of users and is provided only to the rating customer.
The largest rating agencies evaluate probability of default based on historical values, i.e. a series of defaults by country or individual instrument with a certain rating is taken and the frequency of defaults is calculated (thanks to long history statistically significant results are obtained).
As the importance of the ratings used increases, regulators may want to monitoring of ratings and monitor the level of their objectivity of both new and well-known rating agencies.
International rating agencies are currently forming an independent branch of the economy, producing in-demand products - a rating assessment that has found regular buyers - investors in the global financial market.
Rating forecast- the direction of the most likely change in the rating in the medium term, determined by the rating agency (for example, the agency S&P There are the following types of rating forecast: positive, stable, negative, unstable, insignificant).
The agency uses various rating systems, or scales, to evaluate bonds. Rating scale - ordered rating system. There are international and national scales, which differ in “division value” as a result of the choice of different reliability standards.
One of them - global (.international) Moody's scale ( Moody's Global Scale)- used to assign ratings to non-financial and financial organizations, sovereign and sub-sovereign issuers, as well as structured finance securities.
The expected loss associated with a particular rating symbol and a particular time period should be the same for all debt obligations and issuers that are rated accordingly on a global (international) scale.
In addition, in order to meet the needs of investors, the agency also assigns ratings for certain countries. national scale (National Scale Ratings), which represent opinions about the relative creditworthiness of issuers and debt issues within a given country only, but cannot be used for comparison with ratings issued in other countries.
Demand for professional credit risk analysis in last years has increased sharply, especially due to the rapid increase in the volume of the capital market and the process of globalization of financial markets.
For example, using ratings from an international agency Moody's and its analytical research tracks the debt obligations of about 12 thousand issuing companies, about 25 thousand public issuers, as well as more than 96 thousand structured finance obligations.
Family indexes S&P used by investors around the world to evaluate investment performance and as a basis for a wide range of financial instruments such as index funds, deposit products, futures, options and exchange traded funds (ETFs).
Features of ratings by S&P is to establish forecast rating values. The rating forecast shows the possible direction of the rating movement in the next two to three years: “positive” - the rating may increase; “negative” - the rating may decrease; “stable” - change is unlikely; “developing” - possible increase or decrease in rating.
The information contained in the rating report is published in accordance with the actual information received without any representations or warranties. For example, all Fitch reports are jointly authored and are a collective product Fitch and no individual or group of individuals is solely responsible for a rating.
Rating report Fitch is not a prospectus and is not a substitute for information compiled, verified and presented to investors by the issuer or its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time and for any reason at the discretion of Fitch.
Agency Fitch work with wide range issuers from Russia and the CIS for more than 15 years and assigns international and national credit ratings to banks, non-banking financial organizations, insurance companies, corporate sector issuers, regional and local authorities authorities, sovereign governments.
Universal rating agencies issue ratings to various companies - both in the financial sector and other industries, and in addition to this, they produce a number of other products of information and analytical content. Such agencies include “Expert RA”, "Moody's- Interfax", Russian divisions of international agencies.
Specialized agencies analyze a certain segment of the financial market (for example, the banking market) and issue ratings to participants in this market (“RusRating”, AK&M).
In 2010, seven rating agencies in Russia - three international and four Russian - received official state accreditation under the Ministry of Finance of the Russian Federation. Accreditation has great importance to maintain the stability of the country's financial system, increase the transparency and investment attractiveness of the Russian financial market and should contribute to the creation of an international financial center in Russia.
One of the most important problems in assigning ratings is the comparability of rating scales.
There have been attempts to compare rating scales both abroad and in Russia. The National Securities Association proposed an approach based on an expert survey and agreement on a ratings correspondence table with leading agencies, which is quite subjective. The Association of Regional Banks of Russia used pairwise comparison on limited statistical material without taking into account the historical component. However, this approach did not exclude bias in estimates and did not stimulate the emergence of a coherent picture of comparisons. The Rus-Rating agency used linear correlation and statistical analysis.
Rating agencies are accused of behavior regarding changes in credit ratings often illogical and, as a rule, procyclical. On the one hand, when a rating change directly affects the interests of the US economy (as, for example, in the case of the giant insurance company L/G), the agencies hold the ratings in order to give large companies a chance to attract capital and thereby at least delay the financial disaster national scale. On the other hand, when it comes to country rankings (for example, in 1997, having lowered the ranking South Korea three steps in one day, 5&P and Moody's increased panic in the financial market and significantly worsened the situation of the country, which instantly lost the confidence of foreign investors 1). Similar behavior of rating agencies in relation to the assessment of government bonds European countries became one of the main reasons for the unfolding of a new round of the so-called debt crisis in the EU.
Rating agencies were not required to verify the accuracy of the information provided to them by issuers, which created ample opportunities for the latter to abuse such a system. In 2007, neither S&P neither Moody's have not published a single significant document that would explain why the ratings of most mortgage-backed securities were downgraded only in 2007, why this became a mass phenomenon, why the temporary difference between similar actions two agencies was two days. There was also no confirmation that the agencies adequately analyzed and assessed the risk of such actions for the issuers of these securities and the economy as a whole.
The mechanism plays a negative role separation of asset credit risk from company risks, who released them. To separate the risks of financial instruments from the risks inherent in their issuers, so-called special purpose vehicles were used, which, as a rule, were created specifically for these purposes. Accordingly, when evaluating, for example, mortgage-backed securities, the analyst took into account only the characteristics of these securities, without resorting to research into the mortgage itself, since these were now independent financial instruments issued by an “independent” company. Taking into account the practice of combining various mortgages into one pool, the effectiveness of the work done by rating agencies is called into question. However, the lack of an adequate level of regulatory control and the unprecedented increase in profitability of new instruments made this practice possible.
Countries in Europe and Asia propose to expand the presence of national rating agencies in global financial markets. This approach can improve the quality and transparency of ratings and address conflicts of interest.
The emergence and rapid proliferation of complex structured mortgage financial instruments has created a unique new financial market environment in which the issuer pays for rating model. (issuerpays model) 1 has lost its effectiveness:
- a relatively small number of companies were involved in the creation and sale of such financial products, therefore, their influence on rating agencies was quite large;
- the complexity of new financial instruments reduced the likelihood that an independent third party would be able to promptly identify inconsistencies in the rating assigned to such instrument by a rating agency;
- the profitability of transactions with such financial instruments was much higher than for transactions with underlying assets.
Thus, the rapid development of derivative financial instruments revealed the shortcomings of the system for assigning credit ratings, which, in turn, provoked the abuse of these shortcomings by economic agents.
Currently, the activities of rating agencies are the focus of attention of leading economists and international financial organizations. The European Commission, following a resolution of the European Parliament, has called for a technical consultation on the issue of credit ratings. The ACELN+3 Working Group is considering measures to support the role of national rating agencies in Asia and even possibly create an Asian rating agency governance body.
In order to limit the use of low-quality or controversial ratings, the BIS offers its own solutions to emerging problems:
- clarification of the classification scale of rating agencies;
- disqualification of controversial ratings in which there is a conflict of interest arising from ownership or personnel issues;
- the authorities themselves are engaged in resolving issues related to differences of opinion;
- It is proposed to evaluate the activities of rating agencies and disqualify those that do not meet the requirements for them, or to recognize only ratings that meet certain criteria as national or international.
Control questions and tasks
- 1. What is the importance of rating agencies in international finance?
- 2. What is the difference between the activities of rating agencies and advertising activities?
- 3. What are the main features of the activities of national rating agencies?
- 4. What are they? character traits scoring method of rating assessment?
- 5. List the main types of ratings assigned by rating agencies.
- 6. What is the difference between an issuer's credit rating and an issue's credit rating?
- See: Opuchak V. A. The problem of an alternative rating agency for the international financial center in Moscow // Financial business. 2013. No. 3. P. 60.
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