A user’s guide to credit ratings
AbstractThis article explains how credit ratings can be used by individual investors to make informed investment decisions, and the benefits of credit ratings to the financial system. A credit rating is an independent assessment of the financial capability and willingness of an entity to meet its financial obligations as they fall due (i.e., its creditworthiness). The obligation to disclose credit ratings has been a feature of New Zealand’s prudential supervision of registered banks since 1996. It became mandatory for all banks to have a credit rating from an approved rating agency in 2002. Similar obligations have been introduced for most non-bank deposit takers, and Cabinet has recently decided to require all insurers (not just disaster and property insurers) to obtain credit ratings in the future. Credit ratings play a useful role in encouraging sound management of financial institutions and in supporting market participants’ ability to make informed choices about credit risk. Notwithstanding these benefits, and the usefulness to investors of credit ratings as a simple measure of credit risk, investors need also to be aware of the limitations of ratings. We highlight some of the key issues that investors should consider when using ratings as a tool in their decision making.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Reserve Bank of New Zealand in its journal Reserve Bank of New Zealand Bulletin.
Volume (Year): 71 (2008)
Issue (Month): (September)
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Reserve Bank of New Zealand Knowledge Centre).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.