ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Learn More About - Financial Strength Ratings in the UAE

Updated on August 31, 2015

Introduction to the Financial Strength Ratings

When a bank wants to decide if a potential customer is a viable candidate for a loan or not, they approach credit rating companies. These companies compile data on the borrowing and repaying habits of people and assign them a score which determines their eligibility. A good score, obviously, equals an easy loan approval, maybe even with preferential interest rates. A weak or bad credit score means that getting approval for a loan will be a little tougher. But that is about the products that financial organizations offer to their customers?


Banks and other financial institutions also have a rating system which indicates their financial strength. It is a marker customers can use to judge how well the company is doing. It is a rating that can indicate the financial credibility of a particular company and can be an important factor in determining if you should invest with them or not. Financial strength rating is a marker used to judge the financial strength of insurance companies also.

the financial credibility of a particular company is an important factor in determining if you should invest with them or not.
the financial credibility of a particular company is an important factor in determining if you should invest with them or not.

Financial Strength Rating around the world

The concept of financial strength rating is used by many countries to provide rating for financial institutions and their products. The ratings are designated by letters that are assigned to a specific scenario. A sample of these rating is:

A+ – This is a rating that is given to a company that is rated as being “Superior” in its ability to meet financial obligations. An A+ rating can be advanced to an A++ rating too, if the performance of the company holds up.

A – This rating is for companies that are also in an “Excellent” position when it comes to their finances. If the performance of the company dwindles then the A rating can be brought down to A – (minus).

B+ – The B+ rating indicates that the company whose ability to honour its financial obligations is judged to be Good. Just like the A+ rating, the B+ rating can be increased to B++.

B – The rating B is reserved for companies whose financial strength is judged to be “Fair”. It can also be changed to a B- depending upon the performance of the company.

C+ – A rating of C+ indicates that the companies has been assessed to be have a “Marginal” financial strength and can also be changed to C++.

C – A rating of C indicates that the company’s finances have been judged to be “Weak” and that any upheaval in the economy would have a drastic effect on the company itself. This ranting can be given as a C or a C-.

D – This is the lowest rating that can be given to a company and generally indicates a “Poor” ability to meet financial obligations.

Companies like A M Best, Fitch and Standards and Poor’s are the ones that provide these rating. Once they provide a rating, it is considered valid for life or till such time as it is revised. To provide these ratings, companies use various scales like the 20-grade scale which is a traditional scale used by most companies. These ratings have become such an important factor that these days some countries have made it mandatory for companies to have such ratings when they start operating.

Companies like A M Best, Fitch and Standards and Poor’s provide these rating using various scales like the 20-grade scale which is a traditional scale .
Companies like A M Best, Fitch and Standards and Poor’s provide these rating using various scales like the 20-grade scale which is a traditional scale .

Types of Rating

Within the financial strength rating, there are 2 types, a long term rating and a short term rating. The long term rating is indicative of the bank's performance over a long period whereas the short term rating is meant to indicate a default in the immediate future.

Within the financial strength rating, there are 2 types, a long term rating and a short term rating. The long term rating is indicative of the bank's performance over a long period whereas the short term rating is meant to indicate a default in the immediate future.

Financial Strength Rating in the UAE

Financial strength rating services in the UAE are provided by companies like CI (Capital Intelligence) which rates banks based on various factors. While most other such ratings are used in reference to insurance products, the ratings provided by this company relate more to the bank as a whole. These factors are the ones that influence the environment that the bank has to operate in and can range from economic stability of the country to the regulations and supervision that the banks receive. There are 8 rating that CI gives banks. These ratings range from AAA to D. Here is a detailed description of each rating.

Tweets on FSR by CI
Tweets on FSR by CI | Source
  • AAA – The AAA rating indicates that the bank is showing growth and that the environment is good for growth. It is also an indicator that the bank is an economically stable region.
  • AA – The AA rating is given to banks which are also operating in an environment similar to AAA but maybe with slightly less growth being shown.
  • A – This rating indicates that the institution may be performing well but its environment may be unstable. This could be because even though the bank is in an unstable region, it may have a strong market share.
  • BBB – This is a rating that is indicative of an ok performance with weakness in the financial sector. Such a performance could be due to an inherent instability in the region that the bank is located in.
  • BB – The BB rating is given to a bank when it significant weaknesses are found in a bank's makeup. These weaknesses could be a result of a lack of finances or the need for external support to help the bank.
  • B – This is a rating that is meant to indicate that there are fundamental weaknesses in the bank and that it may not be able to cope with sudden changes. The rating can also indicate that the bank has a weak position in the market or that it is operating in a very volatile market.
  • C – This indicates that the bank in question is in a very weak state and might not survive any sudden changes in the operating environment.
  • D – This being the lowest rating is a warning of sorts which indicates that the position that the bank is in may lead to its eventual closure.

Financial Strength Ratings
Financial Strength Ratings

These ratings can be modified with the addition of a “+” or “-” to them to indicate an improvement in the institutions performance or a fall. The rating itself is revised every 12 months based on the performance of the bank during that period.

The financial strength rating is an important factor that is used by investors to determine the potential fruitfulness of an investment. Needless to say, the higher the bank's rating the better its future is, from the point of view of a customer and that of a potential investor.

Your Feedback

Did you know about Financial Strength Ratings before reading this post?

See results

Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    Click to Rate This Article