Time flies with great content! Renew in to keep enjoying all our premium content.
Prime
How Fitch, Moody’s, S&P rate countries’ credit scores
Sluggish credit demand is squeezing banks' net interest income as shrinking loan books force lenders to auction assets like vehicles and homes to recoup losses.
Credit rating agencies play a vital role in determining the cost of debt for many African countries who have been accessing international capital markets to fund their budgets.
The role played by these agencies has, however, been put under scrutiny by leaders including President William Ruto who has raised issues over potential bias against African issuers. This critique has seen African governments move to create their own rating outfit.
This is an independent assessment by an agency of the country’s credit worthiness. Global credit rating agencies such as Fitch, Moody’s and Standards & Poor’s (S&P) issue outlooks denoted in letters where a triple A rating or AAA is assigned as the highest possible score rating, which signifies strong financial health and a low risk of default.
What is Kenya’s current credit rating?
S&P Global Ratings has assigned Kenya the highest credit rating of B issued in August 2025. Fitch Ratings assigned Kenya a B- in August last year while Moody’s assigned the country a rating of Caa1 in January this year.
How do rating agencies come up with the decision on a country’s credit worthiness?
Each agency has a rating committee and decision-making process where a team sits periodically usually every six months for sovereign rating assessments.
What constitutes a ratings committee?
A ratings committee will on average have seven to nine members. An odd number is targeted to avoid a split vote. Voting members of the committee include a chairperson, an out-of-region analyst, a back-up analyst and an in-region analyst.
The committee will involve a variety of credit analysts, some outside the ratings group which may be drawn from banking, corporates or even another rating’s group.
What processes lead up to the ratings decision (committee vote)?
All key materials to be used in the ratings decision are circulated to committee members 24-hours before the ratings meeting
The rating’s committee will first assess a sovereign’s economic strength, taking a view of factors such as the growth of gross domestic products (GDP), the scale of the economy and wealth (income per head/capita).
Strength and robustness of institutions including how predictable they are is also assessed. The committee also determines the fiscal strength of a sovereign/country including debt burden and debt affordability.
Final major assessment involves a view on the country’s ability to withstand a shock event, also described as a country’s susceptibility to event risk.
The committee also conducts peer comparisons on other sovereigns with similar economies.
What else is assessed?
Some rating agencies will assess other aspects outside economic, fiscal and institutional strength including environmental social and governance (ESG).
Under ESG tracking, the issuer’s carbon transition is assessed along with physical climate risks, human capital, demographic and social trends, health and safety, financial strategy and risk management.
Management’s credibility and track record and a sovereign’s organisational structure are also analysed.
Scoring under this metric ranges from one to five where a score of one is deemed positive while a score of five is perceived as highly negative.
What are some of the roles of specific ratings committee members?
The lead analyst- this member drives the primary assessment of sovereigns’ economic, institutions and fiscal strengths and makes recommendations to other participants.
The backup analyst- this member usually offers an alternative view to the lead analyst, widening the debate and offering nuances to the general view. The backup analyst will also recommend an alternative recommendation to the committee.
In region analyst- The analyst, usually based in the region from which the issuer of the rating is based and will have held meetings with key authorities including the Central Bank, the Treasury ministry and the IMF delegation to get local insights into the sovereign.
A ratings agency usually conducts visits to the issuer/sovereign/country at least once every two years with the visits being either physical or virtual.
How is voting conducted?
The committee develops a score card on each assessment from which the final rating is derived.
The voting order has the lead analyst voting in first place, followed by junior to senior analysts with the Chairman voting last to avoid biases including swaying the vote of the less experienced junior analysts.
An outlook signal is added to each rating where an unstable outlook usually implies a significant probability that the sovereign’s rating would change in the next 12 to 18 months.
The final rating decision is usually the committee’s majority vote which is dispatched as a draft to the sovereign/issuer.
What happens before the ratings decision hits the market?
The ratings agency will discuss the decision with the issuer country within 24-hours over a call which also conveys the rating decision.
The committee/rating’s agency will prepare the decision along with the credit opinion, explanatory notes and score cards which are then sent out to the issuer and communicated to the market.
Who uses the ratings decision?
Investors: In the case of a sovereign buyers of its debt are usually the primary issuers of credit ratings and use them to evaluate the likelihood of default by an issuer on its obligations.
Other users of ratings include corporations, which can obtain their own ratings to attract investors, financial institutions who can both be issuers and investors, government municipalities and private market participants.
