Everyone knows the term credit rating. Most often it is used to characterize banks, but this concept can be applied to an individual, legal entity, and even a country.
What is an individual’s credit rating is understandable. This is an opportunity for a person to return loans received from banking organizations. This indicator is calculated by banks to determine the feasibility of providing a loan to a specific person.
If you increase the scale, we will get a credit rating of the company. It will be of interest to both partner firms and investors.
What is a country credit rating?
The same concept has a lot more information load if applied to a more complex economic organization, such as a country. Credit ratings of the countries of the world reflect the risk of investments in the infrastructure of the state. Based on this indicator, we can draw conclusions about whether the state will be able to answer for its debt obligations. Investors, making decisions on large investments in an enterprise or industry, must take into account the current values of the credit rating.
But at the same time, in essence, this is a forecast. It does not give 100% guarantees of the return on investment, therefore, it cannot be an absolute indicator of reliability. When making investment decisions, the credit rating of countries should be considered in conjunction with other factors confirming the feasibility of such investments.
Who is authorized to determine credit ratings?
The indicators we study can be national and international . The former are determined by national rating organizations. In Russia it is Rus-Rating, Expert RA, National Rating Agency and others, in Ukraine - Credit Rating and Standard Rating. They have authority only within their own country.
Significantly more confidence is given by the data of international rating companies:
- Moody's.
- Standard & Poor's (S&P).
- Fitch
They were created in the United States at the beginning of the last century, but received worldwide recognition and entered the international level.
These organizations determine the international credit ratings of countries, industries, enterprises, banking organizations, issue related forecasts, and also analyze financial markets.
Credit rating
Each rating agency has defined its own notation scale. The meaning of the basic concept has a letter definition, and intermediate categories on the S&P and Fitch scales are marked with “+” and “-” signs, which in value are not much different from the numbers in the Moody's scale.
| Hoody's | S&P | Fitch | Explanation of meaning |
| Aah | AAA | AAA | Superior Credit Reliability |
| Aa1 | AA + | AA + | High credit reliability |
| Aa2 | AA | AA |
| Aa3 | AA- | AA- |
| A1 | A + | A + | Medium reliability (growing) |
| A2 | A | A |
| A3 | A- | A- |
| Baa1 | BBB + | BBB + | Average reliability (decreasing) |
| Baa2 | BBB | BBB |
| Baa3 | BBB- | BBB- |
| Ba1 | BB + | BB + | The possibility of speculative operations |
| Ba2 | BB | BB |
| Ba3 | BB- | BB- |
| IN 1 | B + | B + | High spec |
| IN 2 | IN | IN |
| AT 3 | IN- | IN- |
| Saa1 | CCC + | STS | Excessive risks |
| Saa2 | STS | Super speculative operations |
| Saa3 | - | Pre-default state |
| Sa | SS |
| FROM |
| C | D | DDD | Default |
| DD |
| D |
What is a forecast from a rating agency?
It is worth considering the credit rating of countries along with a related forecast issued by the same agencies. They are of four types:
- A positive outlook means that in the near future the rating is likely to increase.
- Stable - does not portend changes.
- Negative - probably lowering the credit rating.
- In the case when there is an equal probability of both a decrease and an increase in an indicator, a developing forecast is determined.
How has the credit rating of Ukraine and Russia changed over the past year?
In 2014-2015, events occurring in these countries provoke a decrease in the indicator in question. And the first consequences are already noticeable.
The credit rating of the Russian Federation was downgraded by Moody's from Baa1 to Baa2 at the end of 2014. In addition, there is a likelihood of further lowering it - the forecast is negative. Standard & Poor's also lowered Russia 's credit rating from BBB- to BB + in foreign, and from BBB to BBB- in national currency. Fitch at the beginning of 2015 made a completely predicted decline from BBB to BBB - all with the same negative outlook.
Ukraine, according to international rating agencies, is in a pre-default state. At the beginning of 2015, Fitch established a negative trend for her. The credit rating of Ukraine in foreign currency, according to Standard & Poor's, at the end of 2014 was lowered from CCC to CCC-.
Why is this happening? The credit rating of countries is reduced in proportion to the increase in their foreign economic debt.
Can you trust rating agencies?
When corruption flourishes at all levels, the question arises: "How accurate are the data of rating organizations? Can they be trusted?" Indeed, a “twisted” credit rating of countries can greatly affect the situation in the sphere of world investments and direct large investment flows in the wrong direction. If the rating data used by the investor side is false, then this calls into question the relevance of investments and sooner or later will be reflected in profits.
The aforementioned rating agencies have worked hard for years, earning global authority and trust. Now their job is to provide the most truthful and relevant information to maintain their status. Assigned international credit ratings cannot be falsified in any way, therefore they can be used as a reliable source of information for market analysis.