Credit rating shows the grade of creditworthiness of a given corporation or the likelihood of debt payment for a given debt, e.g. corporate bonds, loan, commercial papers (CP).

Credit rating is an opinion of the credit rating agency (“CRA”) as a fair third party to the ratable entity. It is expressed by way of the credit rating symbols that the CRA defines on its own methodologies.

A Tool for Diversifying of Fund Raising Methods:

• Public issuance of bonds, CPs, etc. for financing from the market is practically hard to carry out without using credit rating as a means to convey information of their credit risk.
• Credit rating is applied to the syndicate loans these days.
• The use and functionality of credit rating is increasing along with the advancement of financial market development to cover, on top of its conventional role to help align the financial cost of given bonds, etc. with the creditworthiness of its issuer at the time of issuance, asset finances and hybrid securities and thereby being regarded as effective to be used for any finance in the whole spectrum of a company’s balance sheet.

Third-Party Assessment Helps IR:

• Rising concern on the corporate governance makes the credit rating increasingly well-sought by the companies with no need of finance or bond issues, etc. in order to make their credit rating public as an IR measure to promote public recognition on their whole business.
• Credit rating is a powerful means of dissemination of corporate information vis-à-vis the customers/ vendors and investing public.
• Credit rating helps recruitment.
• Non-listed companies seek credit rating to appeal their managerial transparency.

New BIS Rules Employ Credit Rating:

• Under the BIS rules, introduced in 2006 as the standards of risk measurement for the banking businesses, the credit rating is used as a calculation basis of risk weight for given assets, e.g. loans, securities, etc., held by the bank.

Application to Management Policies:

• As CRA is engaged with a whole range of companies and industries through its services, the credit rating is highly useful if its points of objective assessment, which are availed time and again in the process of monitoring and periodical reviews of the rating, are taken in the management policies.