38 ALRAQABA . ISSUE 20 defined as “an opinion of a specialized analyst or an institution in the general credit solvency of the institution, that is, its ability and desire to meet its financial obligations and the level of financial risk.” Second: International Credit Rating Agencies: International agencies issue credit ratings for companies, financial institutions, or countries. Standard & Poor’s, Moody’s, and Fitch are the main players in the credit rating industry. They collect necessary data to study the financial situation of an entity and assess the financial solvency, which is based on a set of factors and qualitative and quantitative criteria determined by the rating agency, which assesses credit risk. Accordingly, a rating is issued to the entity and published to the public. The agencies follow up on the rating score on an ongoing basis. The credit rating score is divided into two grades: the investment grade, which represents a high level of quality and low credit risk. Moody’s, Standard & Poor’s, and Fitch give the symbols (Aaa) and (AAA) for the highest rating. The other grade is the speculative grade, which represents a low level of quality and high credit risk. Symbols used by Moody’s range from (Ba) up to (D), which is considered the lowest rating. As for Standard & Poor’s and Fitch, rating scores range from (BB) to (D), which also represents the lowest rating. Agencies issue a credit rating that shows the financial solidity and ability to meet obligations within a year or more; this is called a long-term credit rating. While a short-term credit rating covers a period that does not exceed 13 months. Rating agencies also added a set of symbols to provide further clarification regarding the credit rating, which includes future rating trends that may be either positive or negative. A positive trend is when the agency expresses an opinion on raising the rating in the future. A negative trend, on the other hand, describes the possibility of lowering the rating, while a stable trend indicates that no possible change is expected. Third: The Concept of Sovereign Credit Rating and Its Significance: Sovereign credit rating is an independent assessment made by global agencies regarding the creditworthiness of countries. Those global agencies assess the risks related to borrowing for governments and examine the efficiency or risk of a country’s default and fulfillment of financial obligations. Global rating agencies (Moody’s, Fitch, Standard & Poor’s) assess the sovereign credit ratings of countries and governments. In addition, several agencies such as (IBCA, Duff & PHELPS, and Thomson Bank Watch) were recently founded due to the increasing demand of countries to obtain sovereign credit ratings in the late 1980s. The average rating of States’ government bonds before that was (AAA/Aaa); in the 1990s it became (BBB-/Baa3). Governments and States seek to obtain a high credit rating because of its importance and significant economic, financial, and political impact. Credit rating is an essential tool that plays a vital role in influencing the cost of financing, investment decisions, and country policies. High credit ratings make it easier for countries, especially developing countries, to obtain the necessary financing and loans, facilitate countries’ access to global markets, help Articles
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