Azerbaijan, Baku, Jan 17 /Trend/
Ellada Khankishiyeva, Trend Analytical Centre Head
Europeans think about creating their own credit rating agencies.
It is important to establish independent, European credit rating agencies and to support this issue at a European level, German Foreign Minister Guido Westerwelle said during a visit to Athens on Sunday.
The main reason for such a statement was that ratings agency Standard & Poor's downgraded the sovereign credit ratings on nine of the 17 Eurozone countries, including France, Austria, Italy, Spain and Portugal in the past week. Germany, with its highest rating of AAA is not affected. Greece also isn't affected; its pre-default rating CC remains unchanged.
Leading European stock indexes began trading in the red on Monday on the downgrade of a number of Eurozone states, i.e. investors reacted with pessimism to the report of Standard & Poor's. In particular, the French CAC 40 index in the first minutes of trading lost one per cent amounting to 3165.15 points. Germany's DAX fell by 0.5 per cent - to 6114.40 points. Britain's FTSE 100 declined by 0.3 per cent to 5621.47 points.
There are three leading rating agencies - Standard & Poor's, Moody's and Fitch Ratings at the moment. All three are private corporations with headquarters in the United States, and the ratings of Standard & Poor's and Moody's are de facto mandatory for large issuers of debt. The result of their work is to assign a specific rating of the issuer or issue of securities, which shows the opinion of the expert agency on the borrower's ability to carry the obligations associated with servicing the debt.
Analysis of the creditworthiness of the applicant to receive a rating is a laborious process. Rating agencies use a wide range of tools while awarding the international credit rating. Each credit agency has its own method for determining credit ratings.
Rating agencies in carrying out the work of the award of the international credit rating tools use a wide span, with each credit agency having its own method for determining credit ratings.
For example, the basic indicative feature at Fitch Ratings has around 30 separate features of level. Everything is taken into account in analysing the economic status of the state, from political stability to the number of operating banks and inflation levels and depending on the results, the country is assigned a rating of D - the worst figure to the top figure of AAA.
Each area of analysis is closely connected with both economic and political risks. Both of them are the main determinants of credit risk. Economic risks determine the presence of a government's opportunity to timely repay the debts. They are in a functional dependence on both quantitative and qualitative factors. Political risks reflect the political will of the government and the degree of its willingness to pay its obligations. This represents a high-quality category, which distinguishes it from most other types of issuers.
Thus, the confidence of investors in any state depends on its credit rating. Azerbaijan cooperates with all three famous rating agencies.
Azerbaijan has been cooperating with Fitch Rating for 12 years. Moody `s and Standard & Poor's have been involved to the analysis of the economic situation in the country since 2006. Azerbaijan for the first time got a B rating in June 2000 within its three-year contract with Fitch Rating. In May 2010, Fitch first assigned a long-term rating in foreign and local currencies BBB-positive to Azerbaijan.
In 2006 Moody `s assigned BB + to Azerbaijan. In March 2011, Moody's revised its outlook on Azerbaijan's sovereign rating Ba 1 from stable to positive, referring to the improvement in the financial area of the country due to the increase in oil prices and prudential governance of revenues.
In December 2011, Standard & Poor's raised the long-term rating in Azerbaijan's foreign and local currencies BBB- stable. The increase in Azerbaijan's rating is connected with the increase in oil revenues coming into the country, as well as their effective governance to create a position of internal and external net creditor.
The rating action is stipulated by the fact that the increasing net assets of the Azerbaijani public sector and the international investment position of the country improved to a level that ensures considerable reserves for both the budget and external balance of payments. The agency also stressed the implementation of Azerbaijan's strong fiscal policy.
Azerbaijan's credit rating is especially important in the context of global instability while these figures are dropping in other countries, even with highly developed economies. Moreover, the increase in the rating reflects a combination of macroeconomic stability and a low level of external public debt (seven per cent of the GDP).
The increase in the country's rating along with increased confidence of the international financial community in the country will increase its solvency, create the right conditions to issue the securities for the government and enable large companies to borrow on international financial markets. Moreover, after global financial stability is restored, Azerbaijan plans to issue and place Eurobonds on international markets.