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Rating Inconsistency Part 2

October 5, 2012

Last week, Moody’s downgraded Vietnam to B2.  The reason- the exposure of the banking sector to state-owned entities that are performing badly.  By the same argument, the People’s Republic of China should have been downgraded.  Chinese banks have a stunningly large exposure to state-owned entities.  On account of the global slowdown, these entities, which generated low single digit RoCEs even in the best of times, are under severe stress.  A bailout of Chinese banks is around the corner.

Analytical consistency has never been one of Moody’s (or other rating agencies) strong point.  This is just another episode which demonstrates that.  S&P still rates the UK above the US.  One has to be seriously retarded to buy that.


From → Credit Analysis

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