scholarly journals The Country Ceiling and Sovereign Rating Relationship Exemplified by the Case of Poland

2021 ◽  
pp. 2-17
Author(s):  
Paweł Niedziółka
Keyword(s):  
Credit Rating ◽  
Country Risk ◽  
Sovereign Risk ◽  
Rating Agencies ◽  
Credit Rating Agency ◽  
Upper Limit ◽  
Original Contribution ◽  
Scope Of Application ◽  
Economic Reality

The aim of the article is to answer the question whether the ratings of entities registered in Poland are limited by the sovereign rating of the country. The author theorises that the sovereign rating of Poland does not constitute the upper limit for ratings granted by the Big Three (Fitch Ratings, Moody’s and Standard & Poor’s) to Polish financial and non‑financial entities. The databases of three leading rating agencies were queried, selecting all (52) long‑term foreign ratings assigned to entities registered in Poland. The analysis indicates that currently no confirmation can be found of the use of the country ceiling principle, according to which the rating of any entity registered in a given country cannot be higher than its sovereign rating, by rating agencies (7.7% of rated entities in Poland is given higher rating than the sovereign one). This is at the same time a higher percentage than the average for all Big Three ratings, amounting to approx. 3%. The country ceiling is an upper, potential sovereign rating bound, resulting from the T&C risk. In the case of entities registered in Poland, however, their rating is a maximum of one notch higher than the sovereign rating, which in turn is in line with the policy that Standard & Poor’s officially announced as the only agency among the Big Three (the rating of an entity registered in a given jurisdiction can be up to four notches higher than the sovereign rating). The analysis of ratings assigned to Polish entities also indicates that a rating above the sovereign rating awarded by a given credit rating agency does not translate into similar actions of other agencies. This paper analyses the relationships between the concepts of country risk, T&C risk and sovereign risk. Another original contribution is establishing how the country ceiling principle used by rating agencies works in practice and verifying the scope of application of this principle in the Polish economic reality.

An Analysis of Defaults of Long-term Rated Debts

2005 ◽  
Vol 30 (1) ◽  
pp. 35-50
Author(s):  
Suveera Gill
Keyword(s):  
Performance Management ◽  
Credit Rating ◽  
Complete Information ◽  
Credit Rating Agencies ◽  
Rating Agencies ◽  
Credit Rating Agency ◽  
Default Rates ◽  
Default Rate ◽  
Investment Grade

Lately, the credit rating agencies have been the subject of significant criticism for failing to warn the investors of the defaults well in advance. Investors in long-term debt instruments are usually risk averse, buy-and-hold types; and hence, for them, the variability of investment-grade default rates is particularly important since they employ simple investment-grade rating cut-offs in the design of their investment eligibility plan. According to ICRA (Investment Information and Credit Rating Agency of India) and the other credit rating agencies, default means that the company has either already failed in the payment of interest and/or principal as per terms or is expected to fail. The debt rating at no time informs as to how much bond face value holders would recover in the event of a default. The present regulations pertaining to the credit rating agencies preclude the investors and issuers from suing agencies for awarding a particular rating. Hence, credit ratings are of value only as long as they are credible. This paper tests the reliability of ratings assigned by ICRA on the basis of the actual default rate experience on long-term debt across five sectors over a period of seven years, i.e., 1995–2002. The reason for including only long-term debt instruments for the purpose of analysis is that the assigned rating and its movement can be observed only over a long period. Since the credit rating agencies do not publish ratings that are not accepted by the issuers, this study is limited to only those issues that have been accepted and used by the issuers. The default statistics were examined sector-wise, period-wise, and company/institution-wise. Analyses of the background and business, operating performance, management and systems, financial performance, prospects, key issues, and the reasons cited for defaults were undertaken with respect to all the companies. Simple metrics like default rates by rating grades and rating prior to default were used to analyse whether low ratings (i.e., speculative-grade ratings) were assigned by ICRA to defaulting credits well in advance of default rate. Further, an attempt was made to identify whether companies in default had issued other debt instruments that were rated by other credit rating agencies. The findings highlight the following: The performance of the manufacturing sector vis-a-vis other sectors has been dismal. The period of high defaults (1997-1999) coincides with a high interest regime and poor economic conditions in India. ICRA's performance in terms of proper surveillance and provision of timely and complete information about the companies rated by them has not been up to the mark. The findings certainly draw attention towards the fact that excessive reliance on credit rating needs to be reduced. Since the governance of the credit rating agencies is questionable, adequate steps have to be taken to make them more accountable.

The Origins of Sovereign Risk Ratings

2020 ◽  
Vol 19 (3) ◽  
pp. 388-414
Author(s):  
Diogo L. Pinheiro
Keyword(s):  
Credit Rating ◽  
Social Issues ◽  
Credit Rating Agencies ◽  
Sovereign Risk ◽  
Rating Agencies

Abstract Sovereign Risk Ratings are controversial measures used to determine a country’s creditworthiness. They are supposed to measure not only a country’s ability, but willingness to repay its debts. Much has been said about what it is that is actually measured by these ratings. But relatively little attention has been paid to who gets rated. That is, there is substantially less research on the issue of the when and the why a nation gets rated by one of the leading Credit Rating Agencies. The objective of this article is to try to understand that, and to sort through different theories for the emergence and spread of sovereign risk ratings. We find that institutional and political aspects matter just as much as economic ones, and that therefore sovereign risk ratings may play a role in political and social issues.

Are Credit Ratings More Rigorous for Widely Covered Firms?

2018 ◽  
Vol 93 (6) ◽  
pp. 61-94 ◽  
Author(s):  
Samuel B. Bonsall ◽  
Jeremiah R. Green ◽  
Karl A. Muller
Keyword(s):  
Credit Rating ◽  
Credit Ratings ◽  
Economic Consequences ◽  
Data Availability ◽  
Press Coverage ◽  
Rating Agencies ◽  
Credit Rating Agency ◽  
Business Press ◽  
Market Participants ◽  
Reputational Costs

ABSTRACT We study how business press coverage can discipline credit rating agency actions. Because of their greater prominence and visibility to market participants, more widely covered firms can pose greater reputational costs for rating agencies. Consistent with rating agencies limiting such risk, we find that ratings for more widely covered firms are more timely and accurate, downgraded earlier and systematically lower in the year prior to default, and better predictors of default and non-default. We also find that the recent tightening of credit rating standards is largely explained by growing business press coverage of public debt issuers. Additionally, we find that credit rating agencies take explicit actions to improve their ratings by assigning better educated and more experienced analysts to widely covered firms. Moreover, we document that missed defaults of more visible firms create greater negative economic consequences for rating agencies, and that rating improvements following the financial crisis were greater for more visible firms. Data Availability: All data are publicly available from the sources identified in the text.

An Emperical Study on Credit Rating Agencies (with Ref. to Default Rates of Crisil)

2015 ◽  
Vol 9 (1and2) ◽  
Author(s):  
Ms. Reenu Bansal ◽  
Dr. N M Sharma
Keyword(s):  
Performance Management ◽  
Credit Rating ◽  
Credit Rating Agencies ◽  
Rating Agencies ◽  
Default Rates ◽  
Key Issues ◽  
The Subject ◽  
Investment Grade ◽  
Financial Obligation

Credit rating is the symbolic indicator of the current opinion of rating agencies regarding the relative capability of issuer of debt instruments, to service the debt obligations as per contract. The corporations with specialized functions namely, assessment of the likelihood, of the timely payments by an issuer on a financial obligation is known as credit rating agencies. Lately, the credit rating agencies have been the subject of significant criticism for failing to warn the investors of the defaults well in advance. Investors in long-term debt instruments are usually risk averse, buy-and-hold types; and hence, for them, the variability of investment-grade default rates is particularly important since they employ simple investment-grade rating cut-offs in the design of their investment eligibility plan. According to CRISIL (Credit Rating Information Services of India) and another credit rating agencies, default mean that the company has either already failed in the payment of interest and/or principal as per terms or is expected to fail. This paper tests the reliability of ratings assigned by CRISIL on the basis of the actual default rate experience in different sectors over a period of ten years, i.e., 2000-2011.Since the credit rating agencies do not publish ratings that are not accepted by the issuers, this study is limited to only those issues that have been accepted and used by the issuers. The default statistics were examined sector-wise, period-wise, and company/institution-wise. Analyses of the background and business, operating performance, management and systems, financial performance, prospects, key issues, and the reasons cited for defaults were undertaken with respect to all the companies. Further, an attempt was made to identify whether companies in default had issued other debt instruments that were rated by other credit rating agencies.

scholarly journals Wpływ COVID-19 na nastawienie i credit ratingi krajów

2020 ◽  
Vol 8 (4) ◽  
pp. 535-564
Author(s):  
Patrycja Chodnicka-Jaworska
Keyword(s):  
Financial Crisis ◽  
Foreign Currency ◽  
Credit Rating ◽  
Credit Ratings ◽  
Short Term ◽  
Rating Agencies ◽  
Thomson Reuters ◽  
The Impact ◽  
The International Monetary Fund

Covid-19 Impact on Countires’ Outlooks and Credit Ratings The aim of the study is to examine the impact of the financial crisis caused by COVID-19 on chang­es in outlooks and credit ratings of major rating agencies. The research hypothesis was as follows: the financial crisis caused by COVID-19 negatively affected the change in outlooks and credit ratings of countries. The study used long-term and short-term credit ratings and outlooks collected from the Thomson Reuters / Refinitiv database regarding liabilities expressed in foreign currency and macroeconomic data from the International Monetary Fund databases, for 2010–2021. The analysis was carried out using ordered logit panel models. The presented results showed a weak significant im­pact of the COVID-19 pandemic on credit rating. The agency that changed its notes in connection with this situation is Standard & Poor’s (S&P). However, the attitude responded to the situation un­der investigation. During the crisis, country ratings have become less sensitive to growing debt, which may be dictated by widespread loosening of fiscal policy. The rate of GDP growth has a par­ticular impact during the COVID-19 period in the event of a change of outlook. Rising inflation is particularly dangerous in the age of pandemics. It may be related to monetary policy easing.

scholarly journals Empirical evolution of credit risk over a decade in IBEX. 35 companies and its relationship with the qualification of its ratings

2020 ◽  
Vol 16 (2) ◽  
pp. 61
Author(s):  
Josep Patau
Keyword(s):  
Credit Risk ◽  
Credit Rating ◽  
Clear Correlation ◽  
Crisis Period ◽  
Rating Agencies ◽  
Credit Rating Agency ◽  
Rating Agency ◽  
Determining Factors ◽  
Commercial Loans ◽  
The One

Object: The present work responds to two objectives. On the one hand, it describes the evolution of the main economic-financial indicators that influence credit risk (insolvency) for a sample of 10 Spanish companies listed on the IBEX 35. This analysis is studied for a comparative period of 10 years, which coincides with a pre-crisis stage (2002-2005) and an economic post-crisis phase (2012-2015). On the other hand, it corroborates the relationship between the analysed insolvency and the rating or credit-risk rating published for these companies by an internationally recognized credit rating agency, Standard & Poor's (S & P).Design / methodology: A sample of 10 companies and a 10-year period including the years 2002-2005 (pre-crisis) and the years 2012-2015 (post-crisis) are chosen, omitting the Spanish economic crisis that occurred in the year 2008. For the study of its evolution, 6 ratios obtained from the scientific literature that relate to credit risk and its effects on investments and company results are calculated. Finally, the correlations of these variables with the ratings of credit risk assessment by the rating agency S & P are measured. Descriptive statistics will assign value and graphics to this ten-year evolution, and with the incorporation of a factorial analysis, the correlation between the ratios and the S & P rating will be determined. The statistical analysis explains this correlation to a greater extent.Contributions / results: The results show a clear increase in the value of the impairment variable due to credit risk ten years later that directly affects the results of the companies, despite these companies having significantly reduced their investments in commercial loans pending collection and drastically reduced the period means of collection of clients. In turn, there is a clear correlation between the insolvency studied and the variables used by the S & P rating agency for the assessment of credit risk.Added value / conclusions: The empirical study concludes that there is a correspondence between insolvency and the rating given by an internationally prestigious rating agency (S & P) for the sample of 10 companies studied. Three variables – customer balance-accounts receivable, investments and the net amount of turnover – are determining factors explaining this correlation, and these three variables are the same ones that decisively influence both the pre-crisis period and the post-crisis period 10 years apart. The rating agencies weigh the insolvency variable in their analyses.

South Africa's Mboweni will aid Ramaphosa reform push

2018 ◽  
Keyword(s):  
South African ◽  
Credit Rating ◽  
Short Term ◽  
Content Type ◽  
Rating Agencies ◽  
Reserve Bank ◽  
Freedom Fighters ◽  
Left And Right ◽  
The Government

Significance A former South African Reserve Bank (SARB) governor and minister of labour, Mboweni faces a crucial first few weeks in his new post as the government attempts to placate rating agencies and engineer an economic turnaround. Mboweni’s initial moves may be determined by Moody’s credit rating review expected today. Impacts In the short term, Mboweni’s appointment will be a boost for Ramaphosa’s bid for fiscal consolidation and growth. In the medium-to-long term, Mboweni will likely prove a more polarising figure inside the ANC than Nene. Allegations linking the Economic Freedom Fighters with a major banking scandal could give Mboweni and the ANC an early political 'win'. Mboweni's previous social media utterances could be further exploited by opponents, both left and right, in the months ahead.

The Effectiveness of Credit Rating Agency Monitoring: Evidence from Asset Securitizations

2015 ◽  
Vol 90 (5) ◽  
pp. 1779-1810 ◽  
Author(s):  
Samuel Bonsall ◽  
Kevin Koharki ◽  
Monica Neamtiu
Keyword(s):  
Default Risk ◽  
Credit Rating ◽  
Balance Sheet ◽  
Rating Agencies ◽  
Credit Rating Agency ◽  
Rating Accuracy ◽  
Rating Agency ◽  
Debt Issuance ◽  
Current Exposure

ABSTRACT This study investigates how differences between the rating agencies' initial (at the date of debt issuance) and subsequent (post-issuance) monitoring incentives affect securitizing banks' rating accuracy. We hypothesize that the agencies have stronger incentives to monitor issuers when providing initial versus post-issuance ratings. We document that initial ratings are positively associated with off-balance sheet securitized assets and incrementally associated with on-balance sheet retained securities. However, subsequent ratings fail to capture current exposure to off-balance sheet securitizations. We also find that subsequent ratings reflect default risk less accurately than initial ratings. The subsequent ratings' responsiveness to default risk is worse when a bank has more off-balance sheet securitized assets. Collectively, our findings are consistent with lax post-issuance monitoring. They raise questions about the effectiveness of using ratings as an ongoing contracting mechanism and suggest that conclusions about rating accuracy could differ depending on whether researchers focus on initial versus post-issuance ratings.

scholarly journals Determinants of Credit Rating Actions: Evidence from International Maritime Companies

2017 ◽  
Vol 5 (2) ◽  
pp. 60
Author(s):  
Elif Korkmaz ◽  
Ersin Firat Akgül ◽  
Seçil Sigalı
Keyword(s):  
Content Analysis ◽  
Credit Rating ◽  
Annual Reports ◽  
Rating Agencies ◽  
The Public ◽  
Credit Rating Agency ◽  
Financial Profile ◽  
Specific Factors ◽  
The 2008 Financial Crisis ◽  
Public Disclosures

This study aims to analyze the relevant factors in determining credit rating agency (CRA) rating actions for international maritime companies. The public disclosures regarding the credit rating actions within annual reports and the credit rating agencies’ websites are analyzed by applying a content analysis for the period 2000-2017. The results of the content analysis indicate that the factor of “market conditions” has been disclosed as the main credit rating action determinant by the CRAs. This finding is in line with the argument that due to the high costs of obtaining the new and confidential information, CRAs tend to rely solely on the market risk in most rating actions, rather than company-specific risk. Moreover, we determine that, after the 2008 financial crisis, CRA disclosures on company specific factors decrease dramatically. Furthermore, opacity prevails in observations regarding company-specific factors as “financial profile” and “corporate business profile”.

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