And by the bank’s own services, it can be formal, expert or mixed.

At formalized approach identify a number of indicators that allow you to evaluate individual characteristics of the client’s creditworthiness, and on their basis determine the formula for the composite index. As a rule, it is a sum of indicators weighted by coefficients in accordance with the importance of the analyzed characteristics. The final index is divided into a number of intervals by groups, classes, categories, etc., each of which characterizes a different degree of credit and solvency of borrowers.

At expert approach the borrower is assigned to a particular group (class, category, etc.) based on the expert’s opinion about his creditworthiness.

The accuracy and quality of the results obtained are largely determined by:

• with an expert approach - the competence of the expert conducting the analysis;
• when formalized, how deeply and comprehensively the characteristics of the borrower’s credit and solvency are assessed and how correctly and reasonably the final score is calculated.

At mixed approach part of the calculation is carried out on the basis of a formalized methodology, and part (usually the determination of the composite index) is based on expert opinions.

Methods for assessing the credit and solvency of borrowers differ according to the subjects of analysis, the composition of the analyzed information, and the composition of indicators. According to the subjects of analysis, borrowers are identified whose activities have distinctive features in terms of assessing credit and solvency and (since it is impossible to create a single assessment methodology that would equally well assess the credit and solvency of banks, enterprises, insurance or brokerage organizations ).

Analysis and specialized reporting is carried out on the basis of information available about the borrower. International credit ratings assigned by rating agencies are used primarily to assess the investment qualities and risk of bonds, and primarily corporate bonds. Some agencies also assign ratings to stocks.

Credit ratings assigned to a country as a whole reflect the level of sovereign risk (so-called sovereign ratings). Sovereign risk is an indicator of the political, economic and financial stability of a country. In the case of assigning ratings to individual sub-federal bodies and organizations, they talk about. The level of country risk cannot be higher than the level of sovereign risk (sovereign ceiling).

A credit rating is an independent and reliable assessment of an issuer's creditworthiness, on the basis of which market participants can make informed financial decisions. This may entail a reduction in the issuer's costs of raising borrowed funds. For those issuers that raise funds against third-party guarantees, a credit rating may reduce the cost of such a guarantee or raise funds more efficiently without purchasing a guarantee.

S&P

The international rating agency is a subsidiary of the McGraw Hill Corporation, engaged in analytical research. Belongs to the three most influential international rating agencies. As an international rating agency, Standard & Poor's provides short-term and long-term credit ratings.

Credit ratings can be assigned to an issuer (the national government, regional and local authorities, corporations, financial institutions, insurance companies, funds, etc.) or an individual debt obligation.

In the CIS countries, Standard & Poor's assigns ratings on an international scale (for obligations in national and foreign currencies) and on national scales created specifically for each specific country.

The Standard & Poor's family of indices is used by investors around the world to measure investment performance and as the basis for a wide range of financial instruments, such as index funds, deposit products, futures, options and exchange traded funds (ETFs).

The issuer's credit rating on the Standard & Poor's international scale expresses the current opinion about the overall creditworthiness of the issuer of debt obligations, the guarantor or surety, the business partner, its ability and intention to timely and fully fulfill its debt obligations.

The credit rating of debt obligations on the international Standard & Poors scale expresses the current opinion on the credit risk of specific debt obligations (bonds, bank loans, loans, and other financial instruments).

Standard & Poor's long-term rating evaluates the issuer's ability to timely fulfill its debt obligations. Long-term ratings range from the highest, AAA, to the lowest, D. Ratings in the range from “AA” to “CCC” can be supplemented with a “plus” (+) or “minus” (-) sign, indicating intermediate rating categories in relation to the main categories.

A short-term rating is an assessment of the likelihood of timely repayment of obligations considered short-term in the relevant markets. Short-term ratings also range from 'A-1' for the highest quality obligations to 'D' for the lowest quality obligations. Ratings within the A-1 category may contain a plus sign (+) to highlight stronger obligations within that category.

In addition to long-term ratings, Standard & Poor's has specific ratings for preferred stocks, money market funds, mutual bond funds, insurance solvency, and derivatives companies.

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.

Moody's

Corporation (NYSE: MCO) is the parent company of Moody's Investors Service. The international rating agency Moody's assigns ratings and publishes independent opinions on the creditworthiness and credit quality of the companies they issue. Moody's assigns ratings to debt obligations of banks, corporations, insurance companies, trust funds, regional and local administrations, states, and international entities. Moody's also issues structured finance ratings.

The company conducts analysis in more than 110 states.

Moody's uses two different rating systems, or scales, to rate bonds. One of them, the Moody’s Global Scale, is used to assign ratings to non-financial and financial organizations, sovereign and sub-sovereign issuers, as well as structured finance securities. The global scale establishes a correspondence between various rating categories and relative levels of mathematical expectation of losses in periods of time of varying duration. The mathematical expectation of losses includes an estimate of the probability and expectation of losses in the event of default.

Moody's expects that the expected loss associated with a particular rating symbol and time period should be the same for all debt obligations and issuers rated accordingly on a global scale. All Moody's rating methodologies, rating practices and rating monitoring systems are designed to ensure consistency in rating assessments.

In addition, to meet the needs of investors, Moody's also issues National Scale Ratings in some jurisdictions, which are opinions of the relative creditworthiness of issuers and debt issues within a given country and cannot be used to match ratings. , assigned in other countries.

Fitch Ratings

is an international rating agency dedicated to providing the global credit markets with independent and forward-looking credit ratings, research and data. Fitch Ratings employees work in 50 offices around the world and provide analysis of the capital markets of more than 150 countries.

Fitch Ratings is headquartered in New York and London and is part of the Fitch group. In addition to Fitch Ratings, the group includes Fitch Solutions, the distribution arm of Fitch Ratings, providing information, analysis and related services. Also part of the Fitch group is Algorithmics, a global leader in enterprise risk management solutions. The Fitch Group is majority owned by Fimalac S.A., headquartered in Paris, France.

Fitch has been assigning international and national credit ratings to banks, non-bank financial institutions, insurance companies, corporate sector issuers, regional and local authorities, and sovereign governments for more than 15 years. Fitch also rates fixed income debt issues and structured finance transactions.

Fitch credit ratings are an opinion of an issuer's relative ability to meet its financial obligations, such as interest payments, preferred dividends, principal repayments, insurance claims settlement, and counterparty obligations.

Fitch's credit ratings cover corporate, sovereign (including interstate and subnational entities), financial, banking and insurance issuers, municipal and other public finance entities, as well as the securities and other obligations issued by such issuers, and, finally, structured financial instruments. financing secured by accounts receivable or other financial assets.

Fitch credit ratings do not directly assess any risks other than credit risks. In particular, ratings do not assess the risk that the market value of the rated security will decline due to changes in interest rates, liquidity, or other market factors. However, with respect to payment obligations on rated obligations, market risks may be considered to the extent that it affects the issuer's ability to make required payments. Ratings do not address market risk as it affects the size or terms of payment obligations (for example, in the case of index-linked bonds).

In the default components of ratings of specific obligations or instruments, the agency typically takes into account the probability of nonpayment or default based on the terms of the instrument's documentation. In some cases, based on special factors, Fitch may issue a rating higher or lower than the bond documentation would suggest. In such cases, the agency clearly states the basis for this opinion in the associated rating message.

"Management in a credit organization", 2007, N 2

The paradox of the rating system is that the company itself (in this case, the bank) pays for assigning the rating. However, we note that the fee is not charged for the rating level, but for completing the rating determination procedure. That is, the payer reimburses the rating agency’s expenses for conducting a thorough analysis of not only public reporting, but also additional information that cannot be obtained from open sources. Rating agencies have become as important market participants as brokers. A further increase in their influence on the financial market should be accompanied by regulation and regulation of their activities. In addition to international rating agencies, national rating companies have emerged and are developing in each country, but this material is not aimed at emphasizing the advantages of international ratings over national ones.

Benefits of obtaining a rating for a bank

The level of credit rating appears in all annual reports of banks. It is significant that a decrease in credit rating by 1-2 levels is modeled by all leading banks when analyzing liquidity risk, since such a change entails an increase in the cost of attracting resources.

According to Standard & Poor's agency, it is a unique tool for assessing the credit risk of issuers and debt obligations in various sectors of the economy. Using a credit rating, it is possible to compare the creditworthiness of issuers and debt obligations of corporations, financial institutions, state authorities and local governments. In addition:

• a credit rating is an assessment of credit risk, that is, the ability and desire of the issuer to fulfill its obligations on time and in full, while rankings cover narrower aspects of economic and financial activity;
• ratings are characterized by a clear definition of credit risk, corresponding to the rating categories of the scale, independent of the number of assigned ratings and the type of objects being rated, while the rank depends entirely on the composition of the objects, their number and characteristics: if you remove at least one object from the list, all ranks will change.

A credit rating is the opinion of a rating agency based on both quantitative and qualitative information, while rankings are focused exclusively on quantitative indicators such as revenue, capital, profit, etc.

Table 1

Benefits of obtaining international credit ratings

Who is this for? profitable	What is benefit	Why is it profitable?
1	2	3
Issuers	Higher flexibility financing	Being independent, reasonable and competent opinion, credit rating helps expand access issuer to borrowed funds and other sources of capital, those thereby increasing its financial flexibility
More attractive conditions attracting borrowed funds	Credit rating represents independent and reliable credit assessment issuer, on the basis of which market participants can accept informed financial decisions. This may entail reduction in acquisition costs borrowed funds. For those issuers who attract funds guaranteed by third parties individuals, credit rating can reduce the cost of such a guarantee or with greater efficiency raise funds without purchasing a guarantee
Grade creditworthiness business partner	Credit rating is often used by banks and others financial intermediaries for making decisions on lending, transactions in the money market, insurance, leasing and any other situations where it is required credit rating business partner. Many companies prefer not disclose your financial information in the process of business negotiations In this case issuer credit rating allows you to save more level of information secrecy
Internal strategic control	Issuer credit rating helps company management determine the cost borrowings in the future
Receipt credit rating by international scale	If the issuer plans get a credit rating Standard & Poor's international scale, receiving rating on a national scale will significantly speed up this process. Ratings by national and international scale based on a unified methodology, and, most likely in total, work on them will be carried out one team of analysts. Issuers, those who want to get two at once ratings have an advantage, so as a rating assignment procedure in this case it will be uniform that will significantly save time and efforts of the issuer's management
Investors and creditors	Credit rating - simple and understandable indicator credit risk	Credit ratings specific company specific debt obligations may be used as simple and convenient tool determining credit risk and comparing it with your own investment strategy investor
Prize evaluation for risk	Credit rating represents is an important indicator allowing you to determine the part the investor's required income, which is necessary for compensation for one or another risk default
Monitoring investment portfolio	For pension managers, trustees, mutual funds and other forms of trust financial management credit ratings are excellent system tool monitoring. Credit changes ratings may mean the need for appropriate investment correction portfolio
Financial intermediaries	Simplification pricing and underwriting	Investment banks and others financial intermediaries, operating on the bond market, can use credit planning rating and placement of bond issues
Marketing	Credit rating can promote the placement of new bond loans, aimed at expanding the circle investors, and also reduce uncertainty about issuer's creditworthiness/ loan Standard & Poor's company will be glad to introduce relevant reports during the period preparing issues for placement
Monitoring creditworthiness business partner	Credit rating can used by financial intermediaries as monitoring tool own assets for credit risk, which act as instructed client and in our own interests

The ratings are not predictive of the likelihood of default, but it should be noted that over a long period of time, the default rate for US corporate bonds rated "AAA" has averaged less than 0.10% per year, while the default rate for bonds rated "BBB" reached 0.35%, and bonds rated "B" - 3.0%.

Issuers or issues of securities rated at the same level have similar, but not necessarily identical, creditworthiness because the rating categories do not fully reflect subtle differences in credit risk.

Types of credit ratings from international agencies

It is necessary to clearly distinguish between ratings that are assigned only on the basis of public reporting, and ratings that are assigned precisely in the manner described above. The first type of ratings is not generally recognized by investors as a serious source.

An investment grade rating indicates a relatively low probability of default (non-payment), while a speculative grade (or non-investment grade) rating indicates a higher probability of default or that default has occurred in the past. Various countries require banks to invest in securities that are at least investment grade. Credit ratings are used by investors as indicators of the likelihood that payments will be made in accordance with the terms under which the investment was made.

International rating agencies assign not only credit ratings, but also corporate governance ratings, which are not discussed in this publication. However, we note that a high corporate governance rating has a positive effect on the credit rating.

International rating agencies have also developed a national rating scale as a relative level of creditworthiness within a particular country. Therefore, these ratings are not intended to compare issuers from different countries, but rather take into account the specifics of credit risk in a given country. The use of such a rating is only appropriate for a certain portion of the risk portfolio of a given country's local market, given the different risks that are taken into account by the foreign and local currency ratings for that country.

Credit ratings are assigned to governments (sovereign rating, or country risk), local governments (municipalities) and corporations (private and public). There is a distinction between the rating of the issuer and the rating of the security itself; naturally, the rating of the security will not be higher than the rating of the issuer itself.

Ratings may be supplemented by a "+" or "-" sign to indicate relative position within the major rating categories. These icons are not added to "AAA" ratings or rating categories below "CCC". A “no rating” designation means that the agency does not assign a public rating to the issuer or issue concerned. A "withdrawn" designation occurs when a rating is withdrawn, if the agency determines that the amount of information available is insufficient for rating purposes, or if a bond becomes due, called, or refinanced.

In some cases, agencies include an issuer or security on a special Rating Watch list to notify investors of the potential for a reasonable rating change, as well as the direction of such a change. The latter can be determined by the marks “positive”, which indicates the possibility of increasing the rating, “negative” - in the case of the possibility of lowering the rating, or “developing”, if the rating can be raised, lowered or confirmed at the same level. Typically, a rating is placed on the Rating Watch list for a relatively short period of time.

Leading international rating agencies

There are national rating agencies in every country, but it is difficult for them to compete with international agencies in terms of authority, professionalism of experts, and name recognition in the market. Three companies are leaders in assigning credit ratings internationally:

Standard & Poor's;

Moody's Investor Service;

Table 2 compares the rating systems of the three leading agencies. The ratings have a certain gradation of values ​​from the highest to the lowest quality of the creditworthiness of the issuers being rated. According to stock market observers, S&P is the most conservative rating agency, Moody's is the authority for investors in Western Europe, and Fitch is a young agency whose specialization is bank ratings. However, such a statement does not seem to be sufficiently qualified.

Table 2

Long-term loan quality ratings from leading rating agencies<1>

Moody's	Standard & Poor's	Fitch Ratings	Rating value
Aaa	AAA	AAA	Best possible rating for securities. Even if circumstances will change probability that solvency of the issuer suffered as a result of foreseeable events are extremely small
Aa	A.A.	A.A.	Very high quality. Solvency is immaterial susceptible to forecasts events
A	A	A	Investment grade, considered a reliable investment. Ability repay on time is high, but exists the likelihood that it could be subject to negative consequences of changes in economic and political circumstances
Baa	BB	BB	Lowest rating investment grade. Needs in monitoring, despite the fact that considered adequate under the conditions ability to timely repayment. Negative changes in the business environment may negatively affect solvency
Ba	BB	BB	Considered a speculative class with possibility of increasing credit risks
B	B	B	Considered highly speculative significant credit risks and limited stock reliability. Current debt obligations are fulfilled, but this execution could be difficult in case of change circumstances
Caa	CCC	CCC	Considered highly speculative significant credit risks
Ca	CC	CC	There may be a default or it is considered hyper-speculative
C	C	C	Considered junk. Is in default
Con (Conditional)			The rating is conditional (conditional) before receipt additional information or fulfillment of requirements
N/R (Not Rated)	N/R (Not Rated)	N/R (Not Rated)	Securities not assigned rating, for example the issuer does not contacted any agency for receiving a rating. This is not always means valuable poor quality paper, however she deserves more attention study, since most issuers who calculate for a good rating, would contact to receive it

<1>Source: http://www.publicbonds.org/major_players/ratesys.htm

All of these firms evaluate new issues, monitor existing issues of securities and publish relevant reports.

Table 3

Comparative characteristics of international rating agencies<1>

Parameter	Moody's	Standard & Poor's	Fitch
Headquarters	USA, New York (www.moodys. com)	USA, New York (www.standardandpoors. com); by CIS countries office in Moscow (www.standardandpoors. ru)	USA, New York, and United Kingdom, London (www.fitchratings. com); by country CIS office in Moscow (www.fitchratings. ru)
Affiliation	Moody's Corporation	Subdivision financial services McGraw-Hill Corporation Companies, Inc. However its activities Standard & Poor's carries out regardless of McGraw-Hill	Was purchased in 1997 by the group Fimalac (Paris, France), included which includes besides Fitch Ratings also company Algorithmics by management financial risks
Income	Income - $1.2 billion; profit - $363 million (2003)	Income from financial services - 1.7 billion Doll.; profit (corporations) - 687 million dollars (2003)	Income from financial services - 476 million euros; profit - 149 million euro (2005)
Direction business	- Ratings and analytical research	- Ratings and analytical research	- Ratings and analytical research
Scale business	- 100 ratings countries (governments); - 11 000 companies- issuers; 25 000 state issuers; - 2400 employees, in including from above 1000 analysts	- 6500 employees, in including 1500 analysts	- Ratings 3100 financial institutions, including 1600 banks and 1400 insurance companies; - 89 countries; - 45 000 municipal tools; - 1500 employees
Start activities	In 1900 founded by John Moody. In 1914 there was created corporation Moody's Investors Service	Founded in 1860 Henry V. Poor. IN 1916 Standard Statistics Bureau, which was created in 1906 for providing financial information about American companies, beginning assign ratings issuers. - Poor's Publishing Company and Standard Statistics Bureau merged in 1941 and formed Standard & Poor's Corporation. In 1966 McGraw-Hill Companies acquired Standard & Poor's	- Founded in 1913 John Knowles Fitch. Published financial reports and worked for New York stock exchange. - In 1924 Fitch proposed a scale ratings (from "AAA" to "D") for independent analysis of financial investments. - Fitch absorbed two competitors Duff & Phelps Credit Rating Co. (Chicago) in April 2000, and in 2001 - Thomson BankWatch

<1>According to agency websites.

A credit rating of a debt obligation is not a recommendation as to whether to sell or buy a particular debt obligation, nor is it an opinion on the market price of the debt obligation or the investment attractiveness of the debt obligation for a particular investor. Also, all rating agencies emphasize that ratings do not insure against the occurrence of default.

• country rating;
• industry rating (in this case, the financial sector);
• rating of the issuer itself (in our case, the bank).

Rating assignment

1. The issuer applies to a rating agency to obtain a rating.
2. The parties sign an agreement to conduct the analysis, assign a rating and support it.
3. The agency appoints a team of analysts who collect public information, then interview bank executives.
4. The agency's rating committee reviews the assessment prepared by analysts.
5. The issuer is informed of the assigned rating.
6. The Issuer agrees to the dissemination of information about the rating.

It is necessary to collect qualitative information about the issuer. Since the information transparency of issuers remains at a fairly low level, public information is often insufficient to conduct an in-depth analysis of creditworthiness. Agencies assign ratings only when sufficient information is available, based on a transparent methodology that takes into account quantitative and qualitative parameters, financial risks and business risks.

At the same time, the methodology for assessing companies differs in that the characteristics of the business (market, competitive position, management and strategy), financial profile (financial policy, profitability, capital structure, cash flow indicators, financial flexibility) are analyzed, and in relation to banks, the emphasis is on studying business factors (market position, ownership structure, strategy and management), as well as financial factors (asset quality, profitability, funding and liquidity management, capital).

For example, Standard & Poor's, upon receiving a request to assign a rating, forms an analytical group, which must include at least one analyst with experience in the CIS countries. A leading analyst is appointed who leads the process, being the main contact person for the issuer. Before the official meeting, the group analyzes information provided by the issuer upon request, as well as information from other sources that Standard & Poor's considers reliable: historical financial statements, financial performance and cash flow forecasts, transaction documentation, legal opinions and other data.

1. officially published financial statements and detailed annual reports;
2. various declarations, press releases, conferences, presentations of issuers;
3. market data, including dynamics of securities prices, trading volumes, etc.;
4. data and research from associations, international organizations;
5. data from supervisory authorities, regulators, ministries;
6. scientific publications and news in the field of finance;
7. forums with financial sector experts, regulators and academics;
8. information received on the basis of meetings and dialogues with the issuer’s managers.

Between the time a rating is requested and the issuer is notified of the assigned rating, there is usually a 6 to 8 week delay. In some cases, the rating assignment process may be accelerated at the special request of the issuer. The main factor determining the length of the rating process is the issuer's ability to quickly, prior to a meeting with management, prepare the necessary information and respond to additional requests for information that may arise during this meeting.

For corporations and financial institutions, having financial statements in accordance with international standards (IFRS) is an important advantage. All confidential information transferred to the company is kept in strict confidence.

firstly, they do not audit or confirm the reporting of the companies they rate;

For each rating, agencies publish a press release, a brief and complete rationale for the rating on their websites, however, a detailed description of the issuer in some cases is available only to subscribers, while the subscription itself can be free or paid, or allow a certain free trial period.

Rating change

In cases where it appears necessary to change the rating, a preliminary analysis is carried out, which may result in registration of this rating in the Standard & Poor's CreditWatch list.

Registration on this list indicates that the ranking may be subject to change in the near future. This serves as a signal to investors that more analysis is underway.

Once a rating is assigned, agency analysts continually monitor all factors that may affect it, such as changes in capital structure, acquisitions of other companies, or other major economic events. Significant events related to the issuer's activities are monitored daily. It is planned to hold meetings between analysts and management.

Significant events related to the issuer's activities are monitored regularly. Based on information obtained from the issuer or other public sources, the rating may be upgraded or downgraded as frequently as the issuer's creditworthiness changes. If no significant events occur, a formal review of the rating (its confirmation or change) is carried out once a year.

If the assigned rating does not meet the issuer's expectations, the latter may challenge this decision. During the appeal period, Standard & Poor's will refrain from publishing the assigned rating until any new information provided by the issuer has been analyzed.

Moody's sets its view on the likely rating change over the medium term. The rating outlook is determined from the following four categories to choose from:

positive - Positive (POS);

negative - Negative (NEG);

stable - Stable (STA);

developing - Developing (DEV - the situation may change depending on the outcome of some event).

In some cases where an issuer has multiple prospects in different directions, Moody's will indicate the symbol "(m)" (denoting multiple different prospects), and Moody's written research report will explain the diversity and the reasons for the discrepancy. RUR (Rating(s) Under Review) assignment - ratings under review - indicates that the issuer has one or more ratings that are being reviewed for possible change, and this overrides the rating assignment. When the outlook is not determined for an eligible issuer, the designation NOO (No Outlook) may be given - there is no certainty of outlook.

The TWR symbol applies primarily to issues that have already been redeemed or repurchased without being assigned a rating.

An underlying rating is Moody's published assessment of the credit quality of a specific loan in the absence of credit improvement. Moody's issues public information regarding an underlying rating upon request by the issuer for a debt that is generally improving in credit quality. The rating scale is identical to that used by Moody's for long-term liabilities.

Moody's also uses a watchlist to indicate that a rating is under review for possible change in the short term. The rating may be placed in an upgrade or UPG category. for a possible downgrade (DNG) or (in rare cases) for an uncertain direction (UNC).

Refusal of the bank's rating

There are precedents when a bank refuses a rating if it does not see the need for it. Thus, in Ukraine, one of the first precedents was the termination of the rating of Privatbank by Standard & Poor's. In Russia, this is a fairly common practice. Only in 2006, three banks abandoned their ratings. In January 2006, the Fitch rating agency withdrew the ratings of the Russian bank "Avangard", which became the first Russian bank to completely refuse to support international ratings, at the same time, the bank had good ratings: long-term rating "B-", short-term rating - "B", support - 5, individual - "D" and long-term rating according to. national scale "BB+" (rus), occupying 45th place in terms of equity capital (3.52 billion rubles) and 47th place in terms of net assets (20.62 billion rubles).

What arguments does this bank give?

Firstly, the bank wants to save money, believing that spending $60 thousand a year on maintaining international ratings is not economically feasible for it.

Secondly, these costs are not considered effective. Since there is a standardized approach to assessing the degree of risk for borrowers, provided for by the Basel II agreement, which guides international financial institutions when setting risk limits for Russian banks, maintaining international credit ratings for most Russian banks is impractical.

Thirdly, a decrease in interest rates in Russia and an increase in them in America have led to the fact that the cost of borrowing on the domestic market is almost equal to the cost of borrowing on the international market.

Thus, at the beginning of 2006, Alfa-Bank officially announced its intention to terminate the contract with Fitch Ratings. Now for the next year, instead of the rating of three international agencies, the bank will have ratings from Standard & Poor's and Moody's. This bank is remarkable in that it holds tenders for the purchase of any goods and services - from stationery to ratings. It turned out that Fitch's conditions were less favorable for the bank. Although the reason for this decision is also associated by the bank's management with the need to optimize costs and the sufficiency of two other ratings, according to experts, the low rating assigned to the bank played a significant role. One of the main goals of the competition was to reduce costs. The choice was made based on the criteria of cost of services and their quality. This is the only case where a private bank chose a rating agency through a tender.

In October 2005, Delta Credit Bank terminated its contract with S&P, explaining that the agency was unable to provide it with the necessary service. Before this, there was only one case in the history of the Russian banking system: in March 2005, the MENATEP SPb bank actually refused the S&P rating, ceasing to provide information to the agency. The bank considered it unfair that the agency downgraded its ratings because of the story with the Yukos corporation. However, in the cases of other banks, experts most often cited their reluctance to have low ratings as the main reason. Other bankers believe that for a large bank operating in different markets, all three ratings are needed, or at least two. The real reason may be that the bank is dissatisfied with the rating assigned to it, which turns out to be lower than the rating of comparable banks.

However, today all banks in the CIS countries are trying to attract cheap money from the West, and the trust of Western financial institutions largely depends on the availability of an international rating, that is, such a rating is a kind of payment for resources. If a bank works with foreign counterparties, then the presence of an international rating is, in principle, mandatory. Today, only those banks that focus on counterparties only within the country can say that an international rating is not needed.

Problems of rating reliability

In the West, the absolute reliability of ratings was called into question after a series of scandals associated with the fall of stock market giants such as Enron, Parmalat, etc. At the same time, the ratings of reputable companies clearly lagged behind the market’s recognition of high default risks. In 2005, a wide discussion was held in the United States of a new document that would regulate the activities of rating agencies. The question remains as to how legal it is that rating agencies charge a fee for assigning a rating from the issuers themselves. After all, issuers are interested in receiving a good rating (we do not take into account the extreme case when a bank receives a rating only for the very fact of being included in the rating).

The agency is interested in receiving income from ratings, while, as practice has shown, such efforts to maintain good relations with customers sometimes took the form of delays in lowering the rating or assigning a favorable rating. For example, the agency warns about a rating downgrade and allows the issuer to quickly improve its performance. This is especially sensitive for an issuer that was in the “investment securities” class and risks falling one class lower, into the “speculative” category (or, as analysts call it in jargon, becoming a “fallen angel”). Indeed, as a result, demands may be made on the issuer for early repayment of debt or closure of credit lines, and this will further worsen the financial position of the issuer and even lead to bankruptcy.

Thus, in the case of Enron (USA), credit agencies hoped that the delay in lowering the rating of this corporation would buy time for a possible merger with another company that could cover Enron's debts. Although we must not forget that a credit rating is fundamentally different from the stock price and cannot be changed only on the basis of the issuer’s quarterly report, but is designed for the long term.

It is known that the analysis carried out by rating agencies influences the determination of the interest rates that borrowers pay on their debts. Therefore, it was recognized that the activities of rating agencies should be regulated as well as the activities of the issuers themselves.

The fall of Enron revealed that agencies gave investors biased assessments of the creditworthiness of borrowers. Rating agencies cheerfully reported on the corporation's activities just before its collapse.

Moody's then rejected accusations that it was more knowledgeable about "fallen" companies than other analysts. Moody's cited the fact that the rating was based on public financial reporting. At the same time, it was recognized that meetings with the issuer’s management were held, but the issuers shared information at their own discretion and chose the level of its disclosure themselves.

Market participants, in particular representatives of Bank of America, noted then that if these agencies simply react to changes in risk that the market has already taken into account in the prices of securities, then such ratings lose their usefulness.

For example, credit rating agencies continued to maintain investment grade debt for Enron Corporation five days before the company was declared bankrupt. It was difficult to understand then why the rating agencies Standard & Poor's and Moody's did not downgrade Enron's debt to junk status before December 2001, while special purpose entities with secured capital (so called SPEs, equity-backed special purpose entities), used by Enron Corporation to maintain a good debt-to-equity ratio, were well known to the public before the default was announced, and therefore probably to the rating agencies.

Western media reported that former US Treasury Secretary Robert Rubin, who now holds a high position at Citigroup, lobbied for Enron's interests in rating agencies<1>. It was revealed that he assisted in falsifying accounting data to hide Enron's financial condition from the rating agencies. In particular, he called the US Treasury Department to put pressure on the credit agencies in favor of Enron when they were going to lower the rating of this corporation. Rubin also directly contacted the management of Moody's Investors Service to convince them of the need to raise the credit rating for Enron. Citigroup invested almost $1 billion in this corporation and was considering it for a takeover deal and receiving a commission for such a deal, so was interested in protecting Enron's credit rating.

<1>See: http://www.opec.ru/news_doc.asp?d_no=19319.

An open discussion of the work of rating agencies also revealed the problem of overload of analysts, who sometimes make assessments mechanically. Otherwise, it is simply impossible to imagine how one expert manages to simultaneously rate 55 companies. As a result, one had to doubt the reliability and depth of the qualitative and quantitative analysis of issuers. All this only increased the problem of agencies' interest in hiding negative information about issuers for fear of losing their clients.

Another issue is that, similar to audit firms, rating agencies provided advice, including to issuers, on how to improve performance to improve ratings. In this case, rating agencies inevitably came into conflict with the interests of investors, for the sake of which ratings are assigned.

Distinguishing the interests of a consultant and an analyst is one of the urgent tasks for all rating agencies. Although in practice, the same Moody's agency only 1% of all income comes from consulting. Rating agencies often find themselves in a dilemma: to downgrade or not to downgrade issuers that have recently been given a high rating. Agencies compete with investment banks by advising clients how thereby improving your financial condition in order to increase your credit ratings.

Until recently, there was no prohibition on employment with issuers who work for rating agencies. As a result, the two roles conflict at the employee level, as was revealed during the investigation of the WorldCom corporate scandal. Then it turned out that Clifford Alexander, chairman of the Moody's agency, was a member of the board of directors of this corporation. Moreover, he left his post at the WorldCom corporation only a year before its bankruptcy was declared.

Therefore, many agencies, including regulatory agencies, do not allow employees to work for other companies that are affiliated with the employer, not only while they are employed by the employer, but also for some time after they have left their job.

At the beginning of February 2004, a loud insider scandal erupted in Russia when, half an hour before S&P announced that it was assigning a credit rating to Russia, a rush to buy shares began. Informed citizens could then earn about 700% per annum. And in October 2003, a similar story happened with another rating agency Moody's: the “catch” of insiders amounted to 550% per annum<1>.

<1>See: http://www.ko.ru/document.asp?d_no=11202.

After a series of such scandals, all three leading credit rating agencies announced actions to review their work.

Reforming Agency Oversight

In response to the corporate scandals of 2001, the US Congress, through the Sarbanes-Oxley Act, required the SEC to conduct an investigation of credit rating agencies, examining the role of these agencies for investors and paying attention to what prevents them from providing fair ratings. agencies. It was also directed to study whether there are any barriers to entry into the credit ratings market and whether there are conflicts of interest that interfere with the work of rating agencies.

In January 2003, the SEC completed and disseminated its research report, identifying five major issues for further in-depth analysis:

1. information flows;
2. potential conflicts of interest;
3. antitrust or unfair competitive market practices;
4. removing possible barriers to entry into the market;
5. constant supervision.

In June 2003, the SEC introduced the concept for discussion.

In October 2004, the International Organization of Securities Commissions (IOSCO) released its code of conduct for credit reporting agencies for public comment.

In March 2005, the SEC issued proposed rules for determining Nationally Recognized Statistical Rating Organization (NRSRO) designation, noting that it lacked the authority to conduct ongoing oversight of credit rating agencies.

In March 2006, the US Senate Banking Committee held its third hearing to evaluate the current supervision and performance of credit rating agencies. In June 2006, the Financial Services Committee of the House of Representatives approved the Credit Rating Agency Duopoly Relief Act, since in the United States the rating services market is actually divided between two agencies - Standard & Poor's and Moody's.

In September 2006, US President George W. Bush signed the Credit Rating Agencies Act, which reforms the regulation of credit rating agencies in the United States.

Thirdly, it provides more reliable protection against conflicts of interest and incorrect use of insider information.

The SEC filings noted: Traditionally, a credit rating has been understood to be an opinion communicated to investors to assist them in determining the credit risk associated with the issuance of obligations. That is, it was emphasized that this was an opinion, not a recommendation. However, the new Law determines that rating agencies are closer in status to brokers and investment banks than to the media. Agencies are similar to brokers in that they have the same fee system and organizational structure, provide information to investors, and monitor corporate governance of issuers.

The credit rating industry is an integral part of the global financial system. A downgrade in a credit rating from investment grade to speculative grade can cause serious harm to a company's financial stability. Given this influence of a credit rating, one cannot limit oneself to defining a rating only as an opinion. Therefore, the new Credit Rating Agencies Act in the US clarifies that a credit rating has the same legal status as information provided by brokers. This increased accountability should increase the agency's motivation to act in the interests of investors, as well as improve the relationship between rating agencies and issuers.

It is expected that the new Law will allow the development of new rating agencies, which will most likely occupy some niches in the rating market, for example, insurance market ratings. However, there is a recognition of the danger that newcomers may inflate ratings in an effort to attract new customers, which would destabilize the credit rating industry.

The new Law empowers the Securities and Exchange Commission to prohibit companies from combining consulting and rating services. Only other companies will be involved in consulting. A ban is also being introduced for analysts from rating agencies to hold positions in other companies.

This suggests the need to introduce a mechanism for regulating rating agencies in other countries.

G.B.Petrov

Banking expert

"Synergy" company

Credit ratings can only be assigned by accredited rating agencies that are subject to regulation. In Russia, inclusion in the register of credit rating agencies and regulation of activities related to assigning credit ratings falls within the competence of the Central Bank of the Russian Federation - the Bank of Russia.

Rating (credit rating) - the Agency’s opinion on the ability of the rated entity to fulfill its financial obligations (creditworthiness, financial reliability, financial stability) and (or) on the credit risk of its individual financial obligations or debt (derivative) financial instruments, expressed using a rating categories (rating level).

Credit rating (type of credit rating) - the Agency’s opinion on the ability of the rated entity to fully fulfill obligations of a credit nature, both current and arising in the course of its activities for a period of up to 1 year.

The financial strength rating is the Agency's opinion about the ability of the rated entity to fulfill its financial obligations to clients, counterparties and creditors. As a rule, financial strength ratings are assigned to companies that rarely use loans and credits (obligations of a credit nature) as part of their main operating activities; this is their difference from credit ratings.

The financial reliability rating is the Agency’s opinion about the ability of the rated entity to fulfill its financial and contractual obligations, primarily to clients and counterparties. Ratings are assigned to organizations that, due to the specific nature of their activities, as a rule, do not assume obligations for loans, borrowings, or debt securities.

2) How can you check the quality of credit ratings?

Calibration.

The Agency's key goal is to conduct an objective qualitative analysis of rated objects in order to assign a rating in accordance with the rating methodology and publish such an assessment for use by all interested parties.

The correctness of classification depending on the type of rating is understood as:

· for derivative ratings (ratings of service quality, quality of corporate governance, investment attractiveness, compliance with Shariah requirements, etc.) – compliance of the actually observed properties of the rating object with the properties determined by the description of the level of the rating scale in the Agency’s methodology.

The excess of the historical probability of default over the predicted probability indicates that the Agency assigned ratings incorrectly. (The basis for the historical probability of default is calculations based on the Rating Transition Matrix and default statistics; for the forecast probability - calculations based on market indicators of credit risk in accordance with Section 3 of these Regulations.)

3) What are the main types of errors in assigning credit ratings?

Incorrect data

Incorrect interpretation of ratings

Incorrect model completion

Procedure violation errors

Errors in methodology

Rating model is a scoring system for the main criteria used to assign ratings, including the set of main criteria itself, divided into blocks, a method for determining criteria evaluation values, basic indicators, the assessment of which determines the score for each criterion, ranges for determining quantitative criteria, weights of each indicator in the final score of the model, the method for calculating the final score and the method for determining the rating based on the final score.

The construction of mathematical models is possible in the following ways (depending on the nature and volume of a priori information, there are two ways to construct models of objects and control systems):

· analytically, i.e. derivation from physical laws, mathematical axioms or theorems;

· experimentally, i.e. by processing the experimental results and selecting approximating (approximately coinciding) dependencies.

Analytical method used to build models of objects of a well-studied nature. In this case, all the necessary information is available, but it is presented in a different form. The models implemented in this case are presented in the form of circuits with lumped parameters (components). For example, theoretical mechanics and theoretical electrical engineering are based on such models.

Control theory methods abstract from the specific nature of objects and operate with more abstract – mathematical (symbolic) models.

The analytical modeling method consists of two main stages:

− building a diagram of the object;

− construction of a mathematical description of the circuit in the required form.

In this case, fundamental modeling problems are solved at the first (informal) stage, and the second is a procedure for transforming the forms of model representation. This allows you to develop and use various computer programs for automating the compilation of equations using diagrams.

Experimental method used when the properties of an object are insufficiently studied or are too complex for analytical description. It consists of active experiments on an object or passive recording of its behavior in normal operation (Fig. 1.19, A).

8) Basic regulatory documents of the Bank of Russia regulating the use of national credit ratings.

5) How is the probability of default calculated?

The historical probability of default for a rating of a certain group is the probability of a default for a given rating with its unchanged value plus the probability of a rating reduction by an arbitrary number of steps and a subsequent default with a new rating level.

A point estimate of the probability of default is calculated - the ratio of the number of defaults for a given category to the total number of observations - the sum of the number of ratings in this category at the beginning of the period, the number of newly assigned ratings for the period and the number of ratings that migrated to this category during the period.

The additional probability of default is calculated - the sum of the products of the probability of rating migration from a given category to each of the lower categories by the point estimate of the probability of default for each of the lower categories, except D (since the transition from C- to D is both a transition and a default in the rating).

The historical probability of default is calculated for each rating category - the sum of the point estimate of the probability of default and the incremental probability of default. Similar calculations are made for levels at the time of default, as well as 1, 3 and 12 months before the specified event.

The ratings of different RAs can be compared using the so-called regular comparison method.

The idea of ​​​​forming a unified rating space (SRS) is the choice of a rating scale (hereinafter called the base one) and the formation of a system of mapping the ratings of all considered rating agencies and internal ratings into the base scale in relation to each class of rating subjects.

7) How can credit ratings be used?

Related information.

Favorable conditions for extracting speculative profitability in the late 80s (high inflation rates, significant fluctuations in the foreign exchange market), on the one hand, and a clear vacuum in the provision of banking services, on the other, determined the extensive path of development of the banking system in post-Soviet Russia until until 1995.

The causes of the August 1995 crisis have already been discussed several times in the press. In the authors’ opinion, this was one of the most striking manifestations of the systemic crisis of the banking system that had begun at that time, the main reason for which was a significant reduction in the potential for further extensive growth, the unpreparedness of most credit institutions to work in conditions of intensifying competition, and a decrease in the speculative potential of financial markets. It is this moment in time that can probably be considered the beginning of the transition of the banking system to an intensive path of development.

The Central Bank of Russia has obliged commercial banks to provide their clients with a set of financial statements (balance sheet, profit and loss statement). However, not all clients of credit institutions can afford to employ specialists who can carry out ongoing monitoring of the financial analysis of partner banks or carry it out themselves. In addition, for a full analysis and assessment of the reliability of a credit institution, knowledge of the general direction of development of the banking system is required, comparison of the indicators of each specific bank with similar indicators of the activities of other credit institutions (which in turn also allows optimizing the choice of a credit institution in accordance with the specific requirements of the client).

In connection with the above, a wide range of clients have a need for already processed and formalized information about the credit institution they are interested in.

Similar activities, namely analysis of the state of credit institutions, are carried out in our country by:

Central Bank of the Russian Federation;

Each of these subjects of analysis pursues its own goals (the Central Bank, performing supervisory functions; credit institutions carry out this work within the framework of the risk management system), and therefore only the results of the activities of specialized agencies in the form of bank ratings according to a certain criterion become available to the general public. At the same time, it can be noted that credit institutions, carrying out a remote analysis of the financial condition of their existing and potential counterparties, also receive a certain rating as a result, where the final reliability criterion is the size of the net credit line established for a given bank.

Thus, it is the ratings that today serve as the main source of information for the main circle of consumers of banking services about the state of credit institutions. In this regard, ratings, acting as information on the basis of which decisions on cooperation with a particular bank are made, must meet certain requirements.

Reliability of the information provided

One of the main factors in the correspondence of the analysis results and the real state of the credit institution is the reliability of the information on the basis of which this analysis is carried out. The imperfections of the current accounting rules, and sometimes even the directed efforts of a credit institution, can significantly distort the primary information. In this regard, an important stage in constructing financial ratings of credit institutions is preliminary work with the received financial statements, based on the results of which a conclusion must be drawn about their reliability.

Another important point for determining the reliability of a rating is the openness of its methodology. However, many banks quite rightly perceive ratings as an element of advertising or PR. In connection with this, there is a desire to artificially improve one’s place in the ranking, and with the desire comes the need to distort financial statements. This largely explains the closed nature of most existing remote analysis techniques.

Efficiency

Unfortunately, practice shows that information about the deterioration in the financial condition of a credit institution is reflected in bank ratings with a significant delay. For example, the deterioration in the performance of the National Credit bank was not at the time reflected in a reduction in its financial rating or transfer to a group of banks with a lower level of reliability. It was simply excluded from the composition of the analyzed banks, but this happened after the bank was unable to fulfill its obligations in full.

Prospects

Ratings of the financial condition of credit institutions are compiled and published at certain intervals (in our country this is usually done monthly or quarterly). Accordingly, for the user of information about the state of a credit institution, it is important that during the period between two publications the bank at least does not lose solvency in order to be able to terminate cooperation with this credit institution with minimal losses.

In addition, each user of rating information, depending on the goals that he pursues in cooperation with a particular bank, may have his own more specific requirements, including for the proactive component of the rating over time.

The types and, accordingly, rated indicators of existing ratings should be determined by the specific goals pursued by end users of information in search of a credit institution. This could be a simple choice of a bank for settlement and cash services or short-term cooperation, and an intention to invest in long-term obligations of a credit institution or its shares. Finally, this may be the search for a partner to implement, for example, long-term investment programs.

Unfortunately, in domestic practice, assigning several ratings to a credit organization depending on the intended direction of cooperation with it has not yet found a place.

Some ratings are based simply on the principle of ranking credit institutions according to some quantitative indicator (capital, size of assets, etc.). A significant drawback of this type of rating is the lack of a qualitative assessment (adjustment) of the ranked indicator (in the case, for example, of rating by assets, both overdue loans, on the one hand, and investments in government securities, on the other), are summed up.

Another significant drawback is the imperfection of existing accounting rules, which entails a distortion of the quantitative characteristics of banks. The most striking example of this is the list of the largest banks in Russia published in November 1997 by the Information Center "Rating", the source of information for the compilation of which was not official financial statements, but the results of audits conducted according to international standards. The discrepancy in the total assets of the first thirty banks for this indicator according to international and domestic standards was almost 1.7 times.

Other ratings are the result of ranking banks according to a certain integral indicator, which, according to the plans of the rating compilers, reflects the level of financial condition of the credit institution, its image, etc., in accordance with the analyzed components.

Depending on the information that serves as the basis for analysis, the ratings of this group can be divided into two large groups:

financial (based on analysis of the bank’s financial statements);

non-financial (the level of management, history, frequency and focus of publications in the media are analyzed).

It should be noted that the problem of formalizing non-financial indicators, as well as the degree of their influence on the development prospects of a credit organization and its financial condition in the future, remains unresolved to this day. The main reason for this may be the excessively high level of activity of banks in the political life of the country.

Work in the field of compiling non-financial ratings was carried out by the TOP-CONTENT research group, the Analytical Center for Financial Information. A feature of existing non-financial ratings is that they are based primarily on press materials. For example, the rating index of the TOP-CONTENT research group includes such components as bank managers in the media, the visual image of banks in the media, advertising in the media. There is no doubt that the image of the bank, its information openness, which are primarily assessed by these ratings, are quite important components of the successful development of the bank. However, these ratings do not reflect either the current financial condition of banks or their condition in the future (an example of this is Tveruniversalbank, which for a long time continued to maintain a high place in the corresponding ratings despite its constantly deteriorating financial condition). Thus, this type of rating is of interest primarily to a narrow circle of specialists, for example, in the field of banking marketing. At the same time, these ratings can provide significant assistance if the user of rating information is faced with the task of finding a credit institution to implement a joint project, an important component of the success of which may be the image of its participants.

Financial analysis of credit institutions and the compilation of financial banking ratings are carried out by such agencies as the Analytical Center for Financial Information and the Information Center Rating. In addition, the rating of the IBO "Orgbank" and the rating compiled on the basis of the methodology developed by Kromonov have become widespread.

Most researchers, when developing criteria for the creditworthiness of banks and constructing models for its assessment, choose a systematic approach as a method, which involves studying the individual elements of the object under consideration and the connections that exist between these elements.

In accordance with the identified elements, systems of indicators are also built, among which the CAMEL system has gained the greatest popularity. However, when developing models, researchers often lose sight of the need to consider the degree of relationships and their direction not only between the values ​​of specific indicators and the final result, but also between the values ​​of the indicators themselves.

This is especially important when constructing credit ratings. Inclusion in the final credit rating equation of two or more indicators, the values ​​of which for each specific bank have a high degree of interrelation, can ultimately significantly distort the results, neutralizing the influence of other indicators. Of course, since each criterion characterizes one or another aspect of the activity of the same credit institution, the selection of a sufficient number of indicators that have a high level of relationship with the solvency of the bank and a low level with each other is difficult to implement in practice.

The most open at present is the procedure for compiling a credit rating using the Kromonov method, which has been repeatedly published in the press. In this regard, without dwelling on its description, I would like to note the most obvious shortcomings. First of all, this concerns the structure of the indicators themselves, which are components of the bank reliability index.

For example, you can focus on the capital protection ratio (the ratio of the size of immobilized funds and the bank’s own capital). All indicators according to the methodology are constructed in such a way that the higher their value, the higher the rating of the credit institution. In this case, this means that the bank is more reliable the more funds it has invested in low-liquidity assets (real estate, household equipment, etc.), while the credit institution continues to improve its rating even if the amount of immobilization exceeds capital, i.e. e. essentially using client funds to support its current activities. As a result, the bank is forced to carry out riskier transactions in order to maintain the level of banking margin (for each unit of liabilities there is a relatively smaller volume of working assets). Thus, at a certain level, this indicator should no longer increase, but reduce the final rating of the credit institution.

It is also incorrect to use such an indicator as the size of working assets when constructing the general reliability coefficient (the ratio of capital and working assets) and the cross-coefficient (the ratio of total liabilities to working assets). According to the authors, these indicators should reflect the level of riskiness of the bank’s credit and investment policies; however, no risk assessment of assets is provided when constructing these indicators.

Finally, judging by the description, weights are assigned to the coefficients in the final formula for calculating the current reliability index solely on the basis of the authors’ ideas about their significance.

At the same time, the increase in the number of actual bankruptcies of Russian credit institutions provides rich material for analysis. At the same time, the value of this material is also based on the fact that if previously, when constructing models for assessing the solvency of banks, it was largely necessary to rely on subjective assessments, cooperation experience, etc., then information about a clearly defined (in this case, unfortunately, fatal ) the financial condition of a credit institution can significantly increase the objectivity of the criteria for assessing the reliability of banks.

In addition, constructing a system of indicators for bank credit ratings using bankruptcy statistics allows us to include in the model a certain proactive component, the need for which is associated with the existence of a number of time lags in working with credit organizations (and which have already been discussed above).

The following main types of lags in this category can be distinguished: