What Is a Bank Rating?

Bank's Credit Rating is an evaluation of a bank's current overall financial ability to pay its financial debts. It assesses the risk rewards of depositors and investors, optimizes the investment structure, avoids investment risks, broadens the financing channels for commercial banks, Stabilizing funding sources and reducing financing costs are of great significance to the supervisory authorities in improving supervision efficiency, weakening information asymmetry in the financial market, and reducing the volatility of market operations. Bank credit ratings generally include three steps: first, the bank's independent financial strength and external business environment are evaluated to determine its individual rating; then, a support rating is determined; finally, the two different factors of comprehensive individual rating and support rating are reviewed by experts The meeting discussed and obtained the bank's credit rating.

Bank credit rating

Bank's Credit Rating is an evaluation of a bank's current overall financial ability to pay its financial debt.
The process of bank credit rating is basically the same as that of other issuers. The complete rating process for an issuer is divided into two stages, namely the initial rating (generally determined by the issuer) and the review and change of the rating (usually initiated by the rating agency). Different rating agencies have slightly different rating methods. The rating practices of the two largest companies, Moody's and Standard & Poor's, represent the most common rating methods. Both agencies first met with rating company staff and management and government officials who applied for the rating company. During these talks, rating companies collect public and unique information needed to perform credit ratings and understand the company's business strategy and the authorities' policies. The analyst prepares a report for the rating committee based on this information, and the rating committee determines the rating.
In recent years, Moody's and Standard & Poor's have also provided rating observations and rating outlooks to complement credit ratings. Rating observations and rating outlooks indicate the rating agencies' views on factors that may lead to rating reviews in the next 6-24 months. These reviews are generally expressed as positive (the situation has improved), stable or negative (indicating that the basic situation has deteriorated).
The second stage is rating review and change. After the initial rating, the rating agency continues to observe the economic and financial situation of the debtor. When an analyst of a rating company believes that the issuer's economic situation has changed significantly, or due to developments that require a rating change, it is announced that a credit issuer's credit rating will be reviewed. Thereafter, rating agencies usually follow the initial rating process to review the issuer under review, and decide whether to adjust the issuer's credit rating based on the review results. The credit ratings of the issuers generally considered are often adjusted. Taking Moody's as an example, 2/3 of its rating review ended with a rating change.
Bank credit rating process
One is the first proposed use of the new Basel Accord
The first is to vigorously develop the securities market and accelerate the pace of commercial bank shareholding reform. In the capital market,
1. Classification of banks : Different banks have different statuses in the economy, and their own strength and possible government support will vary greatly, which directly affects the bank's solvency. For example, policy banks often rely heavily on some government policy businesses, and because of the impact of policies, the quality of assets is poor, but they will receive a lot of policy tilt and other forms of funding because of the financial nature of such banks. The strength level is low, but its debt / deposit level may maintain a high credit level close to the national level.
2. Analyze different banking businesses: Different banks may have large differences in business restructuring and importance, and the degree of influence by the market and the brand value of the business may be very different.
For example, the traditional retail banking business is an important factor influencing the brand value of a bank. For a branch bank, absorbing deposits is a basic business, so the number of branches is an important aspect that affects the brand value of a bank. In addition to absorbing deposits, mortgage loans, private credit loans, and consumer credit card businesses are also important components of retail business. However, with the deregulation and the development of the capital market, the original savings funds have gradually been transformed into mutual funds and pension funds. And other investment products such as life insurance, which make the bank's savings absorption face some competition and challenges; meanwhile, due to the development of electronic technology, many bank customers conduct business through new channels, such as telephone banking, online banking, etc. Obviously, if banks cannot provide new, non-intermediary products to meet the needs of market development, they will gradually lose their original brand advantages. The same is true for wholesale banking.
3. Analysis of bank use models: With the implementation of the Basel New Capital Agreement, more and more banks have developed and used internal rating methods to determine the focus of risk management and the allocation of capital. Taking private credit as an example, in developed markets, more and more banks use different scoring models to evaluate private credit. The business varieties cover home mortgage loans, consumer loans, private non-guaranteed loans, and credit card business. However, most of these scoring systems adopted by banks are based on private behavior and past repayment records. The disclosure of risks often stays on the basis of experience. Therefore, rating personnel need to evaluate the applicability of these scoring systems or expert systems, and Find out how banks use these scoring techniques.
In the wholesale business, many banks will use the internal rating method to measure the credit risk of corporate business loan portfolios. The scientificity and rigor of these internal rating methods should also be the focus of the rating staff.
4. Geographical analysis of the bank: Although many rating personnel consider the sovereignty level or national risk of the country where the bank is located when analyzing the credit rating of the bank, when determining the final credit level, the bank's geographical location is also It deserves enough attention.
This is because in addition to different economic levels and different regulatory environments in different regions, there are great differences in the transparency of the accounting system, the completeness of legal protection, and the degree of development of the capital market. For example, when evaluating banks in developing markets, the use of financial data and ratios should be more cautious. Compared with developed countries, financial disclosure in developing markets is usually simpler, and auditing standards and accounting standards are less stringent than in developed markets. Therefore, the financial information disclosed by banks in these markets may not fully reflect this. The actual financial status and operating results of the bank. In addition, taking into account the characteristics of the rapid development of the developing market economy, the past financial data disclosed by the bank has greatly reduced the predictive power for the future.


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