- Why do banks use the services of rating agencies?
- Any investor, be it an institutional, corporate investor or an individual depositor, wants to know how creditworthy the organization he has chosen is. To get this information, the investor can study the bank's financial indicators, reports in detail (which is also highly desirable) or can simply make a decision based on the ratings given to financial companies by reputable organizations.
There are few such companies in the world. As a rule, when talking about rating agencies, we mean the "Big Three" of international rating agencies. they are Moody's Investor Service, Standard & Poor's (S&P) and Fitch Ratings agencies. Ameriabank was rated by Moody's and S&P agencies, and other Armenian banks by Moody's and Fitch agencies. For example, Moody's agency awarded Ameriabank and confirmed this week a В1 rating for long-term deposits in national currency with a "positive" outlook. By comparing this rating with the ratings of other financial institutions, the investor or depositor can get an idea of the reliability of the given financial institution.
- What is the reason that not all banks cooperate with rating agencies?
-Unlike foreign investors, local investors and depositors pay much less attention to ratings.
Therefore, for banks that actively attract funds from international financial institutions or through capital market instruments, having a rating is much more important than for banks that are not involved in any way with large international investments. Maybe some of them are sure that they will not get a high rating, and that is the reason why they do not apply to rating agencies. There is also a third option, when the company applies to the rating agency, but does not publish the rating awarded because it is low.
- There are cases when companies refuse the services of rating agencies. What does this indicate?
- There is nothing strange when the rating agency confirms the rating, and the company simultaneously refuses the services of the given rating agency. Sometimes this is due to competition between rating agencies (quality of service and price). And if the company refuses the services of the agency due to disagreement with the result, and it is done without the approval of the rating, which the agency necessarily mentions, then in such cases the market's reaction is, of course, negative.
- To what extent does the country's sovereign rating affect the company's rating?
- All Armenian financial and non-financial organizations operating in the RA economic system, when applying to rating agencies, cannot expect a rating that exceeds the sovereign rating of Armenia. Exceptions may be made in cases where the company's business risks are for some reason less related to Armenia (for example, the proportion of foreign operations is high), or the parent company located abroad has a higher rating. In all other cases, the country's sovereign rating is the maximum result that any company can expect. Currently, Ameriabank has the highest possible rating in Armenia, which matches the country's sovereign rating.
- Based on what criteria do rating agencies give ratings to banks?
- There are types of banking risks. they are credit, liquidity, interest rate, currency, operational and other risks. Rating agencies evaluate all the mentioned parameters on the appropriate scale. They examine the bank's financial statements and require detailed information. In addition, they visit the bank and carry out a Due Diligence assessment of the bank's financial condition and all elements of banking risks in order to establish a single rating. I would like to note that non-financial parameters are also taken into account, such as, for example, the quality of corporate governance, the structure of share capital, the presence of institutional investors among the bank's shareholders and many other factors.
- Fitch Ratings agency raised the long-term default rating of Georgia, a foreign currency issuer. Many people in Armenia have a question as to why the rating of Armenia, which is currently 2 points lower than the rating of Georgia, does not increase.
- There is a certain procedure for revising the rating, which has its own deadlines. In practice, a rating agency's positive outlook (which is present in the case of Armenia) remains valid for 18 months, and it usually starts to be revised (upgraded or downgraded) after about a year. I believe that in the coming months, Armenia's sovereign rating may be revised, and according to my predictions, taking into account institutional reforms, maintaining financial stability and increasing economic activity, there is a high probability that Armenia's rating will increase.
Source: www.tert.am