Predicting Credit Rating Migration Employing Neural Network Models

Literature Review

Over the past few years Latin America has seen a change in how foreign capital is acquired. In the 1960’s the alliance program provided assistance, the 1970’s was when the commercial banks had an influx of funding due to the petroleum boom, which led foreign countries to lend aggressively to developing countries. In recent times these nations have become reliant on the IMF and other international agencies and other private sources (Sinclair, 2003). Apart from private funding, sovereign bonds and debt securities issued by government agencies are increasing in popularity in Latin America. Due to the rise in popularity, investors usually look at the credit ratings of major credit rating agencies, such as Moody’s Investor Services, Standard & Poor’s Rating service to assess the likelihood of default. As credit rating agencies have grown in importance and become a key intermediary between investors and borrowers and are nothing less than guardians of capital assigned to emerging markets (Sinclair, 2005).