The credit ratings offered by the different credit rating agencies of different countries is of immense use by the following entities:
1 – Use of rating by the issuers of bonds: For successful issuance of bonds, the issuer must have one rating from a renowned credit rating agency. Nowadays, investors prefer at least 3 ratings in deciding whether to invest in the bond. 3 ratings would imply low credit risk and high credit quality of the bond.
2 – Use of ratings by different investment banks and brokers The credit ratings are used by the investment banks to analyse the risk portfolios of their own. Although in majority of the cases the banks perform the risk levels on their own, they depend more on the credit ratings that are provided by these agencies.
3- Use of Credit Ratings by the Government: The government uses the credit ratings while calculating the net capital reserve requirements of different banks. The credit ratings also find their use in regulation.
4 – Credit ratings are also used in Structured Finance.