History of ratings |  |
History of ratings in Russia
The 1998 crisis made many banks and companies reconsider approaches to credit risks estimation and encouraged rating agencies to reconsider the rating systems as well as banks and companies rating and ranging systems. Principally as financial intermediaries the credit institutions are interesting in the various ratings vary from solvency to relaibility factors. That is why most of national rating agencies are involved in the bank rating. The RA Interfax, RA Expert, RusRating operate on the home market in addition to international Moody’s, Standard&Poors and Fitch agencies with their quite stable activity. These brands survived or appeared on Russian financial market after the crisis. In addition to the Expert and Profile magazines’ ratings the total amount of periodicals and agancies operating with market makers’ statistics which forming their own ratings is innumerable at all.
The absence of current information about financial and competitive position as well of the reliablity of the market makers or impossibility to conduct expert analysis on account of some reason impels to address to agencies and analytical groups providing with such information. The situation, when the Prolog company didn’t fulfil its commitments proceeding to raise on high interest and to swindle investors, clients and contractors, could be prevented if the above mentioned data were accessed opportunely.
Significantly, the informational and analytical department of NAUFOR before all officailly responded on this case interrupting the rating of the Prolog, constituted at that time BBB (sufficient relaibility).
Ratings and rankings
On the one hand, one should distinguish ratings from rankings.
Ratings are the ranging of participants by decrease or increase of some specific indices by some specific index on definite reporting date or the period stated. For example, “100 largest banks by assets”, “Largest asset managements by assets in management by third quarter results”, “Largest companies by aggregate turnover on the stock market in the third quarter”. Rankings are necessary because they clarify the participant’s position at the market by one or another index while ratings do not range but sharply define a participant’s position at the rating scale, which usually is determined using multifactor rating model.
For example, “Rating of investment companies’ reliability” divided from AAA to D by reliability degree or banks solvency rating which is distributed using clear rating scale.
Ratings are necessary for comparison of the participants by the financial and non-financial aggregated indices while rankings are useful at the researches segmentation or the determination of the company’s position in the competitive environment by one or another activity index.
One can relatively divide Russian ratings and rankings on several groups, such as:
1. The first group includes so called «informational rankings».
These rankings are provided for the participants ranking by decrease of some financial indices value. The rating is represented in table form which includes large perticipants according to the ranking results and the assortment of financial indices such as credit portfolio, securities, balances of client accounts, deposits of citizens, budgeting funds. The bank position at the financial market can be possibly clarified by studying these indices.
But the study of such a ranking (that is almost always called rating) can provide with perception of the situation that is mosaic in a certain way. Mostly it is promoted by the rating drawers who propose an investor to look through the set of indices value calculated by them. But they don’t provide with any explanations whether the distinct value of some index means well or not.
2. The second group includes “mixed” ratings and rankings.
As a rule, such ratings involve reliability rating in points as well as general information (financial indices). The investor’s task accordingly simplifies if he trusts the drawer’s calculations.
But there is also some pitfalls in this system because the reliability scoring is a subjective calculation-based estimation. The crisis also learned that the very idea of so-called «reliability» of Russian financial or investment institutions is quite uncertain and requires more detalized multifactor investigation.
3. The third group of ratings – consists of ratings with score rating of its participants’ financial position.
As a rule, they include rating groups with letter and number designation such as AAA or B1 and so on. The bank reliability develops from quantitative as well from qualitative analysis and determines by factor whether this bank belongs to some distinct group. Besides there is also a bar or upper bound of rating which doesn’t allow candidate to have a rating exceeding the national one, that is calculated by international rating agency. For rating of the bank to some group the great amount of financial and qualitative indices is calculated that sometimes exceeds 50 entries, forming a summary relaibility score (factor). The same system is used by large international rating agencies such as Moody’s, Standard&Poors and others.
International rating experience
The international rating agencies, international accounting-oriented agencies have vast experience in rating on the international financial market.
But the rating systems of international agencies also have some deficiencies one of those is a national ratings bar restrictments. As a result the crisis-proved Sberbank two years after 1998 have had a CCC level rating while Turkish and Argentinian banks with a weak economical base and national crisises in both countries were swiftly honoured with high points just as the national situations began to improve.
The examples of Germany, France and China make it clear that national rating agencies could perfectly get along with the foreign giants simply because any national market has companies desire to enter international market and draw foreign investors. This is provided with the international agencies. Additionally, there is vast number of developing and growing home market companies which perhaps not so active as, for example, Enron but rather competitive at home market, and home ratings made for them. Accordingly, foreign agencies use Russian scale at the Russian home market.