Credit

• Acknowledgement, praise, appraisal or respect for something for having a

quality, producing something, doing something, etc.

• Money available for a client to borrow

• Credit is the trust which allows one party to provide resources with approval of

deferred payments

Credit Rating• It’s an estimate, based on previous dealings, of an organization's ability to

fulfill their financial commitments

• Credit ratings express the rating company’s opinion about the ability and willingness of an issuer, such as a company, a corporation ,a state or a city government, or the country to meet its financial obligations in full and on time.

• The ratings lie on a spectrum ranging between highest credit quality on one end and the poor credit rating for bad performance on the other end.

• A credit rating is a useful tool not only for the investor, but also for the entities who are looking for investors.

• An investment grade rating can put a security, company or country on the global radar, attracting foreign money and boosting a nation's economy.

• For emerging market economies, the credit rating is key to showing their worthiness of money from foreign investors. Because the credit rating acts to facilitate investments, many countries and companies will strive to maintain and improve their ratings, hence ensuring a stable political environment and a more transparent capital market.

What’s the Importance of Credit Rating

Main Credit Rating Companies and their rating format

AAAAAABBBBB/BCCC/CC/CD

AaaAaABaaBa/BCaa/Ca/C

Low Risk

MediumRisk

HighestRisk

Lowest Grade also known as

Default or JUNK

About the biggies that rates…. US based financial services and rating

company Division of Mc. Graw Hill Companies Founded by Daryl Lethbridge in 1860 Revenue of about $ 2.6 Billion Above 10000 Employees globally Well known for its stock market indices,

the US based S & P 500, Australian, Canadian, Italian S&P and India’s S&P CNX Nifty.

Rate Spectrum ranges from AAA to D having 7 grades in total.

Belongs to Moody’s Corporation

Founded by John Moody in 1909 concerned with statistics of Stocks and Bonds

Head quarters at New YorkRevenue 1.8 Billion4300 Employees

worldwideMoody is traded on New

York Stock Exchange under the ticker symbol MCO

Rate spectrum ranges from Aaa to C having 7 grades in total.

Some more Biggies

Other than SNP and Moody’s , some more Credit rating agencies that rate organisations are : Fitch RatingsDBRSIGAN JonesDagong

Procedure of Grading• Issuer or the Company applies for grading to

the Rating companies along with the fee.• Representatives and Analysts from the CR

company visit the Enterprise for inspection.• Discussion between the visitors and the

Company Management.• CRC prepares the rating report, assigns a rating and sends to the issuer.• After acceptance, it gets published.

The key factors that decide the grades

of Payment History of the CompanyRevenue growth in the time specificationDebt Credit ratio and financial strength in the marketMarket Value of the CompanyCustomer outlook and satisfactionReturnsWork Culture, Employee Growth and Satisfaction

Key factors that impacts grades of a country

Debt- GDP Ratio : The debt-to-GDP ratio is one of the indicators of the health of an economy. It is the amount of national debt of a country as a percentage of its Gross Domestic Product (GDP). A low debt-to-GDP ratio indicates a healthy economy and profits that are high enough to pay back debts

The country’s economic strength: captured in particular by the GDP per capita including volume of local and foreign investments.

The country’s Institutional strength , measured in terms of country’s institutional framework and governance – such as the respect of property right, transparency, the efficiency and predictability of government action, the degree of consensus on the key goals of political action is conducive to the respect of contracts.

Education Poverty Politics Corruption Health status and Living standards

Grades and DowngradesDowngrading means when a country gets devalued in terms of grade by one status down or perhaps more. The downgrade doesn't actually mean the country will default but it is just a negative change in the rating of the country. This situation occurs when the rating agency feel that the future prospects of the country have weakened and they are uncertain of the government's ability to meet its debt obligations

A GRADE

DenmarkGermanySingaporeSweden NorwaySydneySwitzerlandUKNietherlandCanadaFinlandHong KongAustralia

BelgiumAustriaBermudaChinaFranceJapanQuwaitNew ZealandSaudi ArabiaTaiwan

US

AndoraArubaChileCuracaoIsrailMalaysiaMaltaOmanPolandSpainKorea

Impacts of downgrading to the International Market Risk premium on treasuries increases. Investors demand higher interest rates which would in turn increase the

cost of borrowing for the U.S. Government and make borrowing costs higher for consumers and businesses across the country.

Stock markets tumble US treasury bonds that are considered safest security in the world would

effect their profitability which in turn could have an impact on their share price.

Investors may look for alternate investment options like precious metals and commodities; more demand may push prices of precious metals and commodities little further.

There will also be a negative impact on consumer confidence further increasing unemployment levels, corporate earnings, consumer spending, investments, etc.

Recent Countries in Eurozone downgraded :France, Italy, Cyprus, Portugal, Spain, Austria, Malta, Slovakia, Slovenia

B GRADING

BahrainBrazilIndiaBulgariaColumbiaIcelandIndiaIrelandMexico

Italy

AngolaBangladeshCyprusHungaryIndonesiaJordanVietnam

AlbaniaEgyptGhanaJamaicaKenyaLebanonPakistanUgandaUkraine

Italy’s downgrade• Italy follows Eurozone partners Spain, Ireland, Greece, Portugal and Cyprus in

having its credit rating downgraded. The country has a debt-to-GDP ratio of 120%.• Italy's 1.9 trillion debt load is about four times the size of a permanent bailout fund

that EU leaders are set to sign at the beginning of March.• Standard and Poor's out looked Italy on negative move that added to contagion

fears in the debt-stressed Eurozone. • Italy's economic growth prospects were getting weaker, with planned reforms by

the government not expected to help much. SNP believed that the reduced pace of Italy's economic activity to date will make the government revised fiscal targets difficult to achieve.

• S&P took the decision after lowering its annual growth forecast for Italy to just 0.7% between 2011 and 2014, down from 1.3% a year.

C GRADING

GREECE

Greece is facing an acute political and social crisis this weekend as the bankrupt state prepares to decide whether it can stay in the single currency.

The general consensus in the market is

that Greece will default this year (2012). The only question now is whether or not it will be an orderly default, or if the shit will hit the fan and send the markets into a tailspin increasing the risk of contagion to

Portugal, Italy, Ireland and Spain.

What Next..

The bottom line is that it is a very delicate matter where lot of danger is associated with a downgrade. In short run, this downgrade would do weird things on the streets of any concerned country and could tremble the financial markets around the world.

Who’s Next…………….????

Always be a question

Profit, Loss and Risk is the answer

Eisenstein said uncertainty is the only certainity….

Business always has a long way to go

Thank You…..