The internal rating system and credit risk management: a critical and integrative literature review[Le système de la notation interne et la gestion du risque de crédit : une revue critique et intégrative de la littérature]

Credit risk represents the primary source of vulnerability for banking institutions and constitutes a central concern within contemporary prudential frameworks. In this context, the introduction of the Internal Ratings-Based (IRB) approach under the Basel II framework, and its subsequent reinforcement under Basel III, has profoundly transformed the mechanisms used to measure and manage credit risk. This article provides a critical and integrative review of the academic literature examining the impact of internal rating systems on credit risk management. Based on a structured analysis of theoretical and empirical studies published over the past two decades, the paper investigates the contributions of the IRB system in improving risk measurement—particularly through the estimation of key parameters such as the probability of default (PD), loss given default (LGD), and exposure at default (EAD). It also explores the role of internal rating systems in optimizing the allocation of both regulatory and economic capital, as well as in refining risk-based pricing strategies. The literature review highlights that internal models enhance the differentiation of risk profiles and promote a more efficient allocation of financial resources, thereby improving risk-adjusted performance. However, the existing body of research also identifies several significant limitations, including model procyclicality, excessive reliance on historical data, methodological complexity, risks of regulatory arbitrage, and governance-related issues associated with the discretionary use of internal parameters. Lessons drawn from the 2008 global financial crisis have led to the strengthening of the prudential framework and greater harmonization of practices, notably through the introduction of mechanisms such as the regulatory output floor. The article concludes that the effectiveness of internal rating systems does not depend solely on their technical sophistication but also on the quality of banking governance, the robustness of internal control mechanisms, and the strength of regulatory oversight. Finally, the study proposes an integrative conceptual framework linking internal ratings, governance, and banking performance, thereby opening new avenues for future research, particularly in emerging economies.