Everyone is familiar with the term rating. It is most often used to characterize banks, but this concept may be applicable to an individual, legal entity or even a country.
What is an individual rating -I see. This is an opportunity for a person to return loans from banking organizations. Banks calculate this indicator to determine the feasibility of granting a loan to a specific person.
If we increase the scale, we get a company rating. It will be interesting for partner companies and investors.
What is a country rating?
The same concept has a much more information burden when applied to a more complex economic organization such as a country. Credit ratings of countries around the world reflect the risk of investing in government infrastructure. On the basis of this indicator, conclusions can be drawn as to whether the State will be able to meet its debt obligations. Investors deciding on large investments in companies or industry must necessarily take into account current credit rating values.
But at the same time, it’s basically a prognosis. It does not give a one hundred percent guarantee of return on investment and therefore cannot be an absolute indicator of reliability. When deciding to invest country credit ratings, consideration should be given in conjunction with other factors confirming the suitability of such investments.
Who is authorized to determine credit ratings?
The indicators we study can be national and international. The first are determined by the national rating organization. In Russia, these are “Russian ratings”, “Expert RA”, “National Rating Agency” and others, in Ukraine – “Rating” and “Standard Rating”. They have authority only within their own country.
Significantly credible are the data of international rating companies
- Lite Ratings .
- Clear Rate ‘s (S&P).
- Fitches Survey.
Created in the United States at the beginning of the last century, they gained worldwide recognition and reached international standards.
These organizations determine the international ratings of countries, industries, businesses, banking organizations, issue related forecasts, and also analyze financial markets.
What is a rating agency’s forecast?
It is worth considering country credit ratings along with the accompanying forecast issued by the same agencies. There are four types:
- Positive outlook – means that the rating is likely to increase in the near future.
- stable – does not represent changes.
- Negative – Probably downgrade.
- If there is the same probability of decreasing and increasing the indicator, determine the development forecast.
How has the rating of Ukraine and Russia changed in the last year?
In 2014–2015, events in these countries caused a decline in the relevant indicator. And the first consequences are already evident.
The credit rating of the Russian Federation was downgraded by Lite Ratings with Baa1 and Baa2 at the end of 2014. In addition, there is a likelihood of a further decline – the forecast is negative. Clear Rate‘s also downgraded Russia’s credit rating from BBB- to BB + abroad and from BBB- to BBB- in national currency. At the beginning of 2015, Fitches Survey achieved a completely predicted decline from BBB to BBB – all with the same negative outlook.
Ukraine, according to international rating agencies, is by default. In early 2015, Fitches Survey set a negative trend for her. Ukraine’s foreign currency credit rating was downgraded from CCC to CCC- at the end of 2014, according to Clear Rate ‘s.
Why is it hapenning? The credit rating of countries decreases in proportion to the increase in their external economic debt.
Can you trust credit rating agencies?
In times of flourishing corruption at all levels, the question arises: “How accurate are credit rating organizations’ data? Can they be trusted? Indeed, a “twisted” country rating can significantly affect the world investment situation and direct large investment flows in the wrong direction. If the rating data used by the investor is false, then it casts doubt on the relevance of the investment and will translate into profit sooner or later.
The above-mentioned rating agencies worked for the rooftop, earning world authority and trust. Their task now is to provide true and relevant information to maintain their condition. Assigned international credit ratings cannot be falsified and can therefore be used as a reliable source of information for market analysis.