Best Rating Agency for Financial Institution Bonds – Moody’s Investors Service

There was a huge amount of uncertainty and a wide range of scenarios to analyze but, unlike the great financial crisis, the Covid-19 pandemic was not a bank-led crisis. The progress made by banks in raising capital and strengthening balance sheets has helped contain risks for creditors relatively well, says Ana Arsov in New York, who co-heads global bank ratings with Nick Hill in Paris and Stephen Long in Hong Kong.

“It was clearly a massive and unprecedented event, but having said that, we were very aware that the banks were going into this shock with strong credit measures,” Arsov said. “This is one of the reasons why, while we were quick enough to point out downside risk by changing our various outlook for the banking system to negative in March and April of last year, we were measured in our approach and this was a relatively small proportion of our World Bank ratings that we ended up lowering.

By the first anniversary of the pandemic, Moody’s had put many of the banking systems it covers on a stable outlook. “This reflects the relative resilience of most banks around the world and, therefore, the relatively high degree of support governments have given to global economies,” Hill said.

Moody’s is a big supporter of what Arsov describes as its “no surprises” approach.

“Investors appreciate transparency,” she explains. “We never want the investment community to wonder ‘where did this rating action come from and what does Moody’s think about it?’ Our goal is to provide investors and issuers, as well as the broader market, with clarity regarding our credit ratings and opinions affecting the industry. “

Instead, Moody’s prides itself on the transparency of its methodologies and communications regarding the potential impact of ratings. “How we communicate changes, make sure we have the right timing, and run events like webinars is a big part of our thinking,” says Hill.

The digital leap made as nearly everyone in the market started working from home last year has led, perhaps surprisingly, to more engagement with Moody’s rather than less. Hill says its webinars and panel discussions have been better attended than ever. “These types of events are a great feedback loop for us in terms of understanding what investors are thinking,” he adds.

Moody’s has also made efforts in recent years to respond quickly to the news cycle. “We want to be out there with our point of view as soon as possible,” says Arsov. “We aim to be very nimble and responsive to changes in market environments and we clearly had a big test of this last year, but investors also expect us to have a clear view of trends at higher levels. long term.”

Major themes for Moody’s include questions of what climate change means for financial institutions, the impact of a changing interest rate environment and the digitization of the financial sector. “These are all longer-term themes, which have been accelerated by the pandemic, but investors expect us to be able to talk to these just as much as the expected credit losses from the pandemic,” said Hill said.

The agency’s framework for analyzing the effects of climate change on banks highlights its approach to thematic issues.

The framework examines the impact of increasing portfolio credit risk for banks as climate change affects borrowers and asset values ​​in the real economy, how it is accelerating the transformation of the business model in response. operational and strategic dilemmas, the pressure on banks to reallocate loans and investments, and the impact of climate regulation on bank operations.

“We consider how ESG affects every aspect of a bank’s operations, and we will use this framework in all of our research going forward,” said Arsov. “Even when we write about a narrowly focused topic, we keep these big, macro and global themes in mind.”

To support all of this work requires a strong bench of analysts with whom issuers and investors, who value stability, can build confidence over the years. Arsov says talent management is a priority for the leadership team as they look to the future. “We are very keen on developing and hiring talent to ensure we have the diversity, knowledge and technical skills for the future. “

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