The Guidance to Credit Rating of Guarantee Institutions

The demand of medium and small-sized enterprises on credit rating is the basis of guarantee institutions’ development, while the enhancement of financial performance and promotion of risk management levels are core competences for guarantee organizations’ development and growth. The chief function of guarantee institutions is to use their own credit to promote the credit levels of medium and small-sized enterprises and improve their financing ability. Therefore, the credit levels of guarantee institutions themselves have direct influence on their ability to promote credit levels of medium and small-sized enterprises and development in their future business. According to statistics results, there are over 3000 guarantee companies in China. Along with the facts that frauds of loans from banks through establishment of fabricated loan guarantee institution can be found in some places, the credit risk of guarantee institution is emerging. As a result of reality that some guarantee institutions breach their faith，commercial banks begin to concern and improve the control of guarantee risks. The significance of credit rating on guarantee institutions becomes apparent.

Ⅰ.The significance of credit rating on guarantee institutions

The necessary requirement on guarding guarantee risk of business bank

Along with the development of medium and small-sized enterprises, strong financing requirement provides commercial banks with historic opportunities and challenges. The characteristics of medium and small-sized enterprises with both high growth and high risks determine the high risk of providing loans to them. Therefore, commercial banks require those enterprises to seek guarantee institution as the third party in order to reduce the credit risk. For banks, to choose advanced guarantee institutions and build strategic partnership with them is a key of leveraging the booming medium and small-sized enterprises for their own development. And the compensation capability and will reflected by the credit level of guarantee institution are critical to establish strategic cooperating relationship between commercial banks and guarantee institutions.

The key link to promote credit image of guarantee institutions

Though credit rating on guarantee institutions as well as sufficient disclosure and free spread of credit information, participants in the capital market can realize factors that affect the compensation ability and will of guarantee institutions including the credit promotion potential, situations under risks, risk management capability and risk mitigation technology, etc. in a scientific, rational and accurate way, thereby this will largely improve the transparency of the credit guarantee industry.

Through credit rating, the guarantee institutions can improve their levels of managing risks, further perfect their internal control system, and enhance their strength to defend and reduce risks. As a result, the guarantee institutions can reduce uncertainties of investors’ understanding on them, improve investors’ trust and recognition of them, and to further promote the credit image of the whole guarantee industry.