The Guidance to Credit Rating of Borrowing Enterprises

Ⅰ.The summary of credit rating of borrowing enterprises

The credit rating of borrowing enterprises provides opinions on the credit risk levels of rated enterprises through a simple symbol system. As the appraisal of the enterprises’ integrated financial performance, the rating results show their solvency on common unsecured liabilities. Rating results not only provide important information for establishing the nationwide universal credit system, but can also be used as reference for provision of financing services to enterprises by financial institutions and enterprises’ participation in economic activities.

At present, the borrowing enterprises’ credits are mostly appraised through the internal assessment of commercial banks in China. However, the credit rating of borrowing enterprises in this guidance refers to credit rating by independent and professional rating agencies, which is also called as external rating. In BaselⅡ, the adoption of both internal and external ratings in the measurement of credit risks of commercial banks was proposed to manage and control the venture capital.

Ⅱ. Rating approaches

Ideas and frameworks of rating

The core of Dagong’s credit rating on borrowing enterprises is to sufficiently disclose the credit risk of rated enterprises, therefore, we need to take a comprehensive and systematic investigation in various factors affecting the solvency of rated enterprises and its tendency.

With fundamental method initiating from the connotation of credit risk, rooted from the analysis of the protection degree of enterprise’s operative cash flow and other cash sources to debts, and adequate consideration on the influence of external factors including macro-economic environment, industry development trends, policy and surveillance measures, etc., and internal factors such as the basic operation and competition of enterprises, management quality, development strategies as well as other special risk items, based on the qualitative & quantitative analysis and the static & dynamic analysis, via comparison of the rated object’s position in the industry and the credit risk characteristics of the industry involved, and according to the Dagong credit rating operation system, through judgment on the credit risk of the rated object, the credit level is given. (See Fig.1)