Comparison of banking rating systems
Comparison of banking rating systems

Author(s): Martin Svítil
Subject(s): Business Economy / Management, Accounting - Business Administration
Published by: Masarykova univerzita nakladatelství
Keywords: Rating; Risk Management; Hard-Facts; Soft-Facts:
Summary/Abstract: The aim of the article is to compare several rating systems used by banks and their affiliates, especially in German-speaking countries and Central European countries. The research is focused on the rating of business entities, more precisely the corporate, (especially limited liability companies or joint-stock companies). In particular, two aspects of the rating of the corporate are highlighted in the rating system comparison, namely: (i) which quantitative indicators are used for the calculation of the hard-facts (quantitative analysis based on data from reports, especially balance sheets and profit and loss accounts); and (ii) how the soft-facts are included in the rating system (qualitative indicators usually based on a questionnaire). In addition, the hard- and softfacts weights used to calculate the overall rating result are mentioned and whether these scales are always constant, or vary with a change in a certain quantity of the rated enterprise (usually the size). Also some other characteristics of individual rating systems are briefly mentioned, like the resulting rating scale used. The procedure of collecting empirical data, their assessment according to the criteria of verifiability and relevance and the application of the induction method was used and a generalization of conclusions was subsequently made. The result of the research shows, that concerning the quantitative indicators (i), the highest emphasis is put on the capital structure of an enterprise (whether in the form of Equity to Liabilities or Equity to Total assets) in all compared rating systems. Concerning the other indicators used for the calculation, the monitored rating systems are different, and the total number of indicators also differs (from 6 to 9). For soft-facts (ii) all rating systems agree on some of the queries (e.g. the sensitivity of the rated entity to market fluctuations), but otherwise the number and the topics of the queries overlap only partially.

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