Therefore, credit ratings are considered to be important drivers of bankbooks of finance, its capital structure and ability to continue trading (Greatly. , 2006). Issuer's credit ratings are therefore interesting since they represent the Judgment of informed and modern financial analysts about banks credit worthiness. Most of studies AT ratings Touch on determinants AT Dona ratings, adult pro ODL t D II less or ten reliability of credit ratings. To date, no generally accepted model exists as to what determine CRASS perceptions of banks' credit worthiness.
The current study tries to fill his gap in the literature by examining the accounting determinants of credit ratings of banks in two major markets where the recent financial crisis off/08 is believed to have started: I. E. The US and the I-J. During the 2007/8 banking crisis, credit ratings are believed to have played a key role in this crisis (House of Commons' report, May 2009). On one hand, it is argued that CRASS misled market participants by failing to reflect the difficulties faced by the banks in their ratings.This study tries to explore whether banks' credit worthiness reflect banks' basic risk characteristics.
Our exults indicate that banks' credit ratings rely heavily on bank size, profitability and efficiency as indicators of banks' credit worthiness. However, less liquid banks are found to have higher ratings and the resoluteness no strong relationship between banks' credit ratings and each of asset quality, capital adequacy ratios and leverage. So he credit rationing of banks should be strong as well as better. . Definition of 'Credit Worthiness' An assessment of the likelihood that a borrower will default on their debt obligations.
It is based upon factors, such as their history of repayment and their credit score. Lending institutions also consider the availability of assets and extent of liabilities to determine the probability of default. Know we are going to explain creditworthiness of banks in different cases. 3. Rating methodologies for banks 3.
Agency methodologies This section discusses sequentially the rating methodologies of the three major rating agencies. The discussion is condensed in Table 1 . 3. 2:Creditworthiness methodologies. 3. 3:Loss concept As earlier noted, an important aspect of any credit risk rating system is the loss concept used to differentiate the rockiness of different credit exposures, ii whether he ratings are one- or two-dimensional in form and whether they focus primarily on PDP, LEG, EL or all three credit risk measures.
Read also Credit Mobilier Scandal ApushAll 10 of the surveyed Australian banks utilities two-dimensional rating systems. In rating their credit exposures, each of these banks determines a separate customer-level PDP rating, a facility-level LEG rating and a composite EL rating Generally speaking, as internal credit risk ratings have been applied to a wider range of more sophisticated uses, so too has the need for more accurate, more differentiated and unrepresentative measures of risk. By separately assessing default risk and loss given default, two-dimensional systems (and composite rating systems in particular) can: improve communication about risk (Including Day conveying more telltale International auto rolls prattles Ana Day reducing potential ambiguity over the meaning of risk grades); lessen the tendency at some banks to rate primarily on the strength of available security; facilitate the development of rating tools to assist in the risk rating process; facilitate tracking of the accuracy of risk ratings; Credit ScoreLike the Mornings credit rating for nonofficial companies, the bank credit rating methodology is driven by four key components, or pillars: 1.
Bank Solvency Score(30% weighting) is a ranking based on a bank's capital adequacy, asset quality, earnings power, and liquidity profile. 2. Bank Stress Test Score(30% weighting) is an evaluation of a bank's potential to absorb loan losses while maintaining adequate capital levels. 3. Bank Business Risk Score(30% weighting) encompasses various measures of business risk, as well as Martingale's proprietary Economic Moat and Uncertainty Ratings. .
Distance to Default(10% weighting) is a market-based quantitative ordinal ranking of balance sheet strength and equity volatility. 6. STAGES OF THE CREDIT ANALYSIS The credit analysis can be defined as a process of determining the current creditworthiness of the loan applicant and forecasting the tendencies in its future development. This process is connected with the financial and accounting analysis of the current and future activity and the financial situation of the loan applicant in the specific economic environment and the expected changes in the forthcoming eroded.
The priority of the credit analysis is to determine the following: 1. The managerial qualities of the loan applicant; 2. His ability to regularly repay the loan, the interest accrued and charges by using his current revenue from his business activity at present and in the future; 3. The amount of his capital and the possibility to use it to secure the borrowing of the commercial bank-creditor in the event of risky situations; 4.
The influence of micro and macro environment over the business activity of the company during the current eroded and in the future and respectively over his ability to service the bank loan; 5.Specific risk situations which can affect the borrower's money inflow and consequently result in problems with the repayment of the loan; 6. The correspondence between the extended credit and the real need for it; 7. The correspondence between the term of credit and the circulation speed of the funds for the raising of which it was extended.
The credit inspector can work out a corrected during the decision-taking process about the credit applied for on the axis of a comprehensive credit analysis.The information gathered during the credit analysis is offstage significance to the accurate structuring of the credit, which would contribute to lowering the credit risk. This information can also be used if the need arises for restructuring the extended credit in such a way that it brings higher profits to the borrower from utilizing the resources and respectively the profitability of the bank-creditor. STAGES I en stages AT ten Creole analysis are as Tools: 1 .
Collecting and analyzing information about the company applying for a loan and urinating indicators about its financial situation; 2.Collecting and analyzing information about the credit event; 3. Assessing the credit risk; 4. Checking the reliability of the information, provided by the company applying for a loan; 5. Preparing an analysis of the credit risk; 6. Taking a decision; 7.
Setting the credit terms. At the first stage of the credit analysis - collecting and analyzing information about the borrowing company and formulating a number of indicators about its financial situation the credit bank requires the borrower's annual financial reports on the rent antipasti accounting periods as well as all other accounting documents, which it finds necessary. Tidies of ratings focus on determinants of bond ratings, default probabilities or the so en cry alt rotational.
