Since the burst of the recent global financial crisis, credit rating agencies (CRAs) and their rating process in financial markets and international developments has been a subject of great controversy. Rating agencies are considered to have contributed to this economic recession and huge European debt crisis, by upgrading or downgrading country economies, banks and their derivatives, either due to incompetence, questionable methodologies or serving certain personal and financial players’ interests. Banks, while constituting the basis of global finance, are receiving the credit ratings of the famous agencies and as a result their personal investment and financing decisions, clients, investors and characteristics in general are affected by them.
A brief and comprehensive summary is firstly conducted referring to their historical background, functions and evolving role through the last century in order to provide crucial information on their growing and evolution from simple statistical organizations to financial giants affecting global economy. Moreover, an analysis of the quantitative determinants of credit ratings is conducted, based on the banks of five European countries, widely known in the world of finance as PIIGS. Bank-specific characteristics, such as credit risk, size, liquidity, profitability, efficiency and capital adequacy, are the main aspects of credit rating determinants that are going to be examined in this study.
This study constitutes an examination of the hotly debated issue of credit rating agencies and an effort to provide information on an area in finance that is quite unknown to the public. Certain conclusions are finally reached regarding the bank credit rating process and its methodology in relation with the strong arguments about the lack of creditworthiness and value of the agencies as statistical and financial organizations.
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