The Internal Ratings Of Banks Reference To External Ratings

Commercial bank credit risk is the main risk which commercial banks face.Controlling credit risk affects not only the bank’s own security, liquidity andprofitability but also the public interest.IRB is the core of the bank’s risk managementfor evaluating credit risk. As the history of our country’s banks’ internal rating is stillrelatively short, there is great limitation in rating methods and techniques.On the other hand, the financial crisis has exposed the over-reliance of financialinstitutions on the third-party ratings. Raising the technological level of internal ratingand independence is the development direction of internal ratings. Studying theadvantages of external ratings methods relative to commercial banks’ internal ratingswill be an inevitably approach to improve the commercial banks’ internal ratingtechnology.In this paper, following the literature research and field research, the suggestionson how to take advantage of external ratings to internal ratings is proposed. It isnecessary to pay attention to the qualitative and expertise analysis and establish somemechanism to track the ratings. What’s more, it is important to emphasize the industryand region analysis, cash flow analysis and external support for the debt to improvethe accuracy sensitivity and stability of the ratings.