Country credit rating: definition and meaning of the term

Everyone knows such a term as a credit rating. Most often it is used to characterize banks, but this concept can be applied to a physical, legal person and even a country.

What is the credit rating of an individual is understandable. This is an opportunity for a person to return loans received from banking organizations. This indicator is calculated by banks to determine the appropriateness of granting a loan to a particular person.

If we increase the scale, we will get the credit rating of the enterprise. It will be of interest to both partner firms and investors.

What is the country's credit rating?

The same concept has much more information load if applied to a more complex economic organization, such as a country. Credit ratings of the countries of the world reflect the risk of investments in the infrastructure of the state. Based on this indicator, it is possible to draw conclusions about whether the state will be able to meet its debt obligations. Investors, when making decisions on large investments in enterprises or industry, must necessarily take into account the current values of the credit rating.

But at the same time, in its essence, this is the forecast. It does not give 100% guarantees of return on investment, and therefore can not be an absolute indicator of reliability. When making investment decisions, the country's credit rating should be considered in conjunction with other factors that support the appropriateness of such investments.

Who is authorized to determine credit ratings?

The indicators we study can be national and international . The first are determined by national rating organizations. In Russia, this is Rus-Rating, Expert RA, National Rating Agency and others, in Ukraine - Credit Rating and Standard Rating. They have authority only within their own country.

Significantly more confidence is caused by data from international rating companies:

• Moody's.
• Standard & Poor's (S & P).
• Fitch.

They were created in the United States at the beginning of the last century, but they gained world recognition and reached the international level.

These organizations determine the international credit ratings of countries, industries, enterprises, banking organizations, issue accompanying forecasts, and also analyze financial markets.

Designation of credit rating

Each rating agency has defined its own scale of designations. The meaning of the basic concept has an alphabetic definition, and the intermediate categories on the S & P and Fitch scale are marked with the "+" and "-" signs, which by value do not differ much from the figures in the Moody's scale.

What is the forecast from the rating agency?

Considering the country's credit rating stands along with a concomitant forecast, which is issued by the same agencies. There are four types:

- Positive outlook - means that in the near future the rating is likely to increase.

- Stable - does not herald changes.

- Negative - probably a downgrade of the credit rating.

- In the case when there is an equal probability of both a decrease and an increase in the index, an evolving forecast is determined.

How has the credit rating of Ukraine and Russia changed in the last year?

In 2014-2015, in these countries, events occur that provoke a decline in the indicator in question. And the first consequences are already noticeable.

Russia's credit rating was downgraded by Moody's from Baa1 to Baa2 at the end of 2014. In addition, there is a possibility of further downgrade - a negative outlook. Standard & Poor's also downgraded Russia's credit rating from ВВВ- to ВВ + in foreign, and from ВВВ to ВВВ- in national currency. Fitch made a predicted decline from BBB to BBB in early 2015, all with the same negative outlook.

Ukraine, according to international rating agencies, is in the pre-default state. In early 2015, Fitch set the value of the CC for it with a negative trend. The credit rating of Ukraine in foreign currency, according to Standard & Poor's, at the end of 2014 was reduced from the CCC level to CCC-.

Why is this happening? The credit rating of countries is decreasing in proportion to the increase in their foreign economic debt.

Can I be trusted by rating agencies?

In times of prosperity of corruption at all levels, the question arises: "How accurate are the data of rating organizations? Can they be trusted?" Indeed, the "twisted" credit rating of countries can greatly affect the situation in the sphere of global investment and direct large investment flows in the wrong direction. If the rating data used by the investor side are false, then this raises the question of the relevance of the investment and sooner or later appears on the profits.

The aforementioned rating agencies have worked hard for years, earning world credibility and credibility. Now their job is to submit as true and up-to-date information as possible to maintain their status. Assigned international credit ratings can not be falsified in any way, so they can be used as a reliable source of information for market analysis.