Why is credit rating important for banks? Credit rating is an analysis of the credit risks associated with a financial instrument or a financial entity. These ratings based on detailed analysis are published by various credit rating agencies like Standard & Poor’s, Moody’s Investors Service, and ICRA, to name a few. The purpose of the topic here is to assess the level of future earnings and quality of earnings of the bank concerned by analysing its interest spreads, fee income, operating expenses and credit costs. The ability of the operating income to absorb credit losses is an important parameter. When companies have a higher credit rating, they will be seen as lower risk and therefore get loan applications approved more easily. Lenders like banks and financial institutions will also offer loans at a lower interest rates for entities that have a higher credit rating.

John U

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