An analysis on financial ratios as determinants of corporate credit ratings

In the process of meeting the credit needs of firms, corporate credit rating is the most important stage. The corporate credit ratings, which include the probability of default, are used to calculate the BASEL-capital liabilities and IFRS 9-loan loss provisions of banks in addition to determining loan features, such as price (interest) and collateral. The recent implementations of BASEL and IFRS 9 have made the concepts of "unexpected credit losses (shock)", "macroeconomic variables" and "forecasting" more important in modeling credit risk. Especially with the implementation of IFRS 9, the need for estimating and/or forecasting significant changes in credit risk has increased. Therefore, in this work in accordance with the relevant literature and banking practices, the impact of financial ratios and macroeconomic variables on corporate credit ratings, which is an indicator of credit risk, was analyzed. In our analysis using Tobit regression method, multiple groups were formed from general to specific (all firms, segment, exporter firms, sectoral). With the help of these groupings, models that guide the credit risk monitoring committees were derived. According to the results of our analysis, it was found that financial ratios, especially profitability and financial structure ratios, were the main determinants of the credit ratings and that macroeconomic shocks (uncertainties) decreased credit ratings. Furthermore, according to other findings, incentives/supporting policies for exporters and SMEs are expected to contribute to financial stability by reducing the sensitivity to macroeconomic shocks. On the other hand, it is estimated that the efficiency-enhancing policies, the entering of firms to capital markets, the long-term spread of debts and the equity-enhancing company policies may trigger the increase of the credit ratings. According to our sectoral models, it is thought that supporting paper, chemistry, furniture, construction materials and food industries in the liquidity squeezes and macroeconomic shocks may contribute to financial stability by reducing credit risk.