Determinants of Banks' Credit Ratings: Evidence from Jordan

Abstract

This study investigates the factors that affect Moody's credit ratings of commercial banks using an ordered probit model. We propose an empirical model designed to forecast bank credit ratings using quantitative publicly available information from their financial statements. The sample consists of 13 Jordanian commercial banks over the period (2000-2013). The study estimates a forecasted credit rating of the banks investigated based on the proposed model. The results show that profitability ratios, asset quality ratios, liquidity ratios, capital adequacy ratios and the size of the bank have statistically significant effects on the banks credit ratings.These results have important implications to banks’ customers, investors, management and the regulatory authority.