1. Introduction
2. Definition Contents

3. Credit rationing methodologies
3.1: Agency methodologies
3.2: Table of creditworthiness methodologies
3.3: Loss concept
4. Creditworthiness process
5. Morningstar Global Bank Credit Rating Methodology
6. Stages of creditworthiness

1. Introduction Credit rating agencies (CRAs) formulate and issue credit ratings for both companies (debt issuers) and individual debt instruments. Issuer’ rating represents a forward-looking assessment of the ability and willingness of an issuer, such as a corporation or state or city government, to meet its financial obligations in full and on time. Therefore, credit ratings are considered to be important drivers of bankscost of finance, its capital structure and ability to continue trading (Grayetal., 2006).
Issuer’s credit ratings are therefore interesting since they represent the judgement of informed and modern financial analysts about banks credit worthiness. Most of studies of ratings focus on determinants of bond ratings, default probabilities or the reliability of credit ratings. To date, no generally accepted model exists as to what determine CRAs perceptions of banks’ credit worthiness. The current study tries to fill this gap in the literature by examining the accounting determinants of credit ratings of banks in two major markets where the recent financial crisis of2007/08 is believed to have started: i.e. the US and the UK. During the 2007/8 banking crisis, credit ratings are believed to have played a key role in this crisis (House of Commons’ report, May 2009). On one hand, it is argued that CRAs misled market participants by failing to reflect the difficulties faced by the banks in their ratings. This study tries to explore whether banks’ credit worthiness reflect banks’ basic risk characteristics. Our results