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Credit Rating Method


In efficient markets with rationally acting market participants, the price of a commodity is the result of all the information available to the participants, and is thus the best-possible estimate of the intrinsic value of the commodity. The credit ratings calculated on this basis thus represent the best possible result and show the market participants’ prognosis of the probability of a payment default by governments and companies.


System: the higher the expected earnings on an investment are, the larger are the risks involved. If the expected profits are compared against similar investment options, estimates on the probability of default can thus be derived from the capital market participants.


Reference: the level of yield on fixed interest loans traded on the stock exchange is used as a reference variable for measuring probabilities of default.


Basic principle: the higher the expected earnings of comparable investments are, the higher is the probability of default.


Adjustment: to establish comparability, it is necessary to adjust the heterogeneous selection of loans. A differing level of yield due to different issue currencies must also be balanced out, as is done with varying maturities by continually recalculating yield structure curves.


Scale: the rating scale applied is a relative, not an absolute, credit worthiness scale, and must be interpreted as an ordinal scale. Thus, issuers of an identical classification also have a comparable risk of payment default. The reference values of the scale are based on the global level of yield and must be recalculated continuously.


Rating codes: credit ratings and the resulting risk statements are expressed as a combination of letters and numbers and are comparable with the long-term credit ratings from renowned rating agencies.
The rating scale begins with "AAA 99" as the best-possible rating and is open-ended downward. Every rating class from "AAA" to "D" is divided into one hundred grades. For ratings below the rating class "D", numbers with a negative symbol are used.


Congruence: the comparability of loans is established by a mathematic process which balances issue currencies and maturities that differ due to heterogeneous loan markets. The principles are identical for all issuers and are free of any personal evaluations.


Credit rating: the expected earnings define the risk level at which capital market participants are willing to take a risk on the investment. By comparing the expected earnings of adjusted loans to each other, the credit ratings of the market participants are generated.


Reclassification: issuers can increase their credit worthiness if the yields of corresponding loans decrease more than the global level of yield; in turn, increasing yields have a negative impact on ratings.



Published in Issue 4 / 2013 of the magazine Kredit & Rating Praxis, the official organ of the Federal Association of Rating Analysts and Rating Avisors, e.V. (BdRA)

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Excerpt Ri-x securities

SecuritiesISINRi-xDate
UNIGLOBALDE000849105110,32007-14
DWS VERM.BIL.FO.DE000847652410,67307-14
XETRA GoldDE000A0S9GB011,47407-14
iShares DAXDE000593393112,62007-14
MicrosoftUS594918104520,82207-14
DAIMLERDE000710000046,04707-14
Brent OilDE000A0KRKM571,38207-14
BitcoinBITCOIN185.899,00007-14

Rating of countries: current maps

credit rating world an regions map

Editorial Tweets show

Daily change: climbing countries

PlaceCountryRating↑↓Date
1MongoleiCCC 22232016-07-13
2Sri LankaB 50132016-07-13
3El SalvadorCCC 53132016-07-13
4SüdafrikaBBB 70132016-07-13
5VenezuelaD -298122016-07-13
6PakistanB 57122016-07-13
7IrakCCC 75112016-07-13
8Dominikanische RepublikB 36112016-07-13
9NigeriaCC 8692016-07-13
10Costa RicaBB 4682016-07-13

Daily change: loosing countries

PlaceCountryRating↑↓Date
1BolivienBBB 77102016-07-13
2SchwedenAAA 5112016-07-13
3BarbadosD -27612016-07-13
4PortugalCC 5912016-07-13
5NeuseelandAAA 812016-07-13
6NorwegenAAA 6002016-07-13
7FrankreichAAA 302016-07-13
8DänemarkAAA 7202016-07-13
9Großbritannien und NordiAAA 3602016-07-13
10SüdkoreaAA 8002016-07-13

Daily change: climbing comapnies

PlatzCompanyRating↑↓Date
1Réseau Ferré de FranceA 8115507-13
2WPP Finance S.A.A 633907-13
3AlcoaB 411907-13
4Thurgauer KantonalbankA 571107-13
5Dow ChemicalBBB 551107-13
6RWEBBB 861007-13
7Banco do BrasilBB 5907-13
8Prudential PLCAA 54907-13
9UniCredit BankBB 32907-13
10Macquarie BankB 78807-13

Daily change: loosing companies

PlatzCompanyRating↑↓Date
1Bristol-MyersAA 21807-13
2Landesbank Hessen-ThuerinBBB 72307-13
3Deutsche Bank AGBB 50207-13
4Australia and New ZealandA 63207-13
5Hamburger SparkasseBB 84107-13
6Macy's Inc.BB 13107-13
7Landesbank Baden-WürttemBBB 80107-13
8DNB BankBBB 59107-13
9Federal National MortgageAA 47107-13
10UBSBBB 56107-13