Credit Rating
A credit rating is an assessment of a borrower’s creditworthiness and ability to meet financial obligations.
Meaning in Practice
Credit ratings are assigned by rating agencies based on financial strength, risk exposure, and repayment capacity. They apply to banks, corporations, and sovereign entities. Ratings influence borrowing costs and investor perception.
Why It Matters
Credit ratings affect access to capital markets and funding conditions. Lower ratings can increase borrowing costs and reduce investor demand. They serve as benchmarks for risk assessment across financial markets.
Market Impact
Rating upgrades often support bond prices and lower yields, while downgrades can trigger market sell-offs. Bank ratings directly impact funding costs and liquidity access. Sudden rating changes may increase financial volatility.
Example
A bank receives a downgrade from A to BBB, leading to higher bond yields and increased funding costs in wholesale markets.