n IMFO : Official Journal of the Institute of Municipal Finance Officers - A practical guide to credit ratings




A credit rating is an independent opinion on the ability of an entity to pay its financial obligations, principal and interest, in full and on time. In short, it is an opinion on the creditworthiness of an entity. Ratings are forward looking and should give investors a measure of predictability of how the entity should behave in future. Many investors feel that this attribute was lacking in the ratings issued on the sub-prime home loan market in the United States and the rating agencies were heavily criticised for that reason. However, in spite of these criticisms levelled against the rating agencies over the last two years, they remain powerful institutions and their opinions remain crucial for the effective functioning of the financial markets. In South Africa there are three internationally recognised rating agencies that have also been accredited by the SA Reserve Bank namely Fitch, Moody's and Standard & Poor's.


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