Bank’s Rating a Need or Necessity in Albanian Banking System

Abstract

Financial Transactions have increased and have become more complex over this 20 years. This paper examines the importance of credit ratings assigned to banks in Europe and the positive and negative impacts. We will also see Albanian Banking system over the last 5 years focusing on the risks it faces. The aim of this article is to analyze and identify the importance of Banks’ Rating. Actually, banks are the dominant sector within Albanian financial system, managing more than 95.5% of total financial assets. Although banks sometimes use internal models as a substitute for credit ratings for their credit assessments, the internal models themselves often tend to rely heavily on ratings for actual or methodological input. Investors’ reliance on credit ratings has increased over the past 30 years. Acquiring information is costly, particularly for fixed income investors, given collective action problems. Thus investors seek to outsource creditworthiness assessments to rating agencies. Finally we will see if there is a need of Banks Rating in Albanian`s Banks, the requirements of Basel III and the regulatory of the Bank of Albania.

DOI: 10.5901/mjss.2013.v4n10p490