View source for Credit rating agency

Credit [[rating agencies]] - private bodies which evaluate the borrowing power of various issuers: firms, funds, banks, organisations and governments, by calculating the probability that the debt owed is paid up on time with [[interest]]. The [[evaluation]] relies on the credit score of borrowers and issuers of long - and short - term debt securities alike.
 
==Description==
As a result of credit [[evaluation]], a business entity is assigned a rating which is a measure of [[risk]] involved with [[investment]] in its issued securities. A credit rating aggregates a number of scores from risk [[evaluation]] of given economic, social and [[Political factors affecting business|political factors]].

A rating indicates the risk level with which a given country has been classified. This [[method]] allows to compare the risk across different countries, since [[country risk]] is assessed with the same standards. The cumulative grade of business entities allow to estimate the risk level of a country and decide on the future financial involvement. Independence from local governments of evaluated countries enables a high degree of objectivity. The fact that the data is analysed on an ongoing basis is also a considerable advantage of credit reports.

==Criticism of credit rating reports==
* Published reports rely on past data,
* Choice of criteria for the analysis and their importance affects the rating,
* Subjective, biased by individual analysis of a rating expert evaluating non-measurable factors,
* A negative rating can result in a self-fulfilling prophecy
 
==Examples of rating agencies==

The number of active credit rating agencies is estimated at 140-150. 
Over 50% of all credit ratings in the world come from three agencies:
 
* '''Standard & Poor's''' - The agency calculates credit ratings for over 12 thousand issuings by international entities.
Method applied: expert estimates.
* '''Moody's''' - The agency gives ratings to over 4.5 issuers and over 10 thousand issuings from different countries.
Method applied: expert estimates.
* '''Fitch Rating''' - Method applied: expert estimates.
* '''FORELAND''' - Forecast of Country Risk for International Lenders - BERI Instiut 
* '''Institutional Investor's Country Credit Ratings''' - Method applied: survey among leading banks.
* '''Euromoney Country Risk''' 
* '''EIU''' ([[Economist]] Intelligence Unit).

{{infobox5|list1={{i5link|a=[[Country risk]]}} &mdash; {{i5link|a=[[Cash Ratio]]}} &mdash; {{i5link|a=[[TIBOR]]}} &mdash; {{i5link|a=[[Altman Z score]]}} &mdash; {{i5link|a=[[Economic value of equity]]}} &mdash; {{i5link|a=[[Foreign national mortgage]]}} &mdash; {{i5link|a=[[Incremental borrowing rate]]}} &mdash; {{i5link|a=[[Emerging market economy]]}} &mdash; {{i5link|a=[[Debt capacity]]}} }}

==References==
* Archer, C. C., Biglaiser, G., & DeRouen, K. (2007). ''[http://journals.cambridge.org/abstract_S0020818307070129 Sovereign bonds and the "democratic advantage": Does regime type affect credit rating agency ratings in the developing world?]''. International [[Organization]], 61(02), 341-365.

{{a|Damian Iskra}}
[[Category:Banking]]