The Impact of Credit Risk on Credit Ratings of Banks in Rentier Economies

This study aims to analyze the impact of credit risk on the credit ratings issued by international credit rating agencies for commercial banks, through a comparative analysis of a selected sample of banks operating in rentier economies. The modified Altman Z-Score model was employed to assess the risk of financial distress for banks, and the results were compared with numerical credit ratings obtained from international agency reports. The sample included 14 banks from Saudi Arabia, the United Arab Emirates, and Iraq, spanning the period from 2021 to 2023. The results reveal a gap between some actual risk indicators and official credit ratings, raising questions about the accuracy of these ratings in reflecting the actual financial position of banks, especially in emerging markets. Therefore, financial systems require sound regulatory and supervisory frameworks that can absorb shocks, resolve financial stress, and protect investors in the event of significant market disruptions or economic downturns. By conducting a comparative analysis, this study fills a significant gap in the literature. It provides valuable insights into the impact of credit risk on the credit ratings of banks operating in rentier economies, underscoring the importance of these findings in exploring the sensitivity of credit risk to changes in oil prices. It is also important to narrow the information gap and strengthen the institutional capacity of banks in rentier economies. The findings offer insight into the impact of credit risk on credit ratings, which can inform the development of government policies aimed at enhancing credit ratings.