The Credit Ratings Market: Will Things Ever Change?

Executive Summary

Credit rating agencies (CRAs) have become central players in the global economy. Their role is to provide an assessment of a borrower's creditworthiness and, ultimately its probability of default.

While the credit ratings industry is subject to strict regulatory requirements, it is a highly concentrated space, consistently dominated by three providers; Fitch, Moody’s, and Standard & Poor’s (S&P), collectively known as “the Big Three”, hold over 90% of the market globally.

The concentration of the credit ratings market and the dominance of the Big Three is partially due to their aggressive acquisition strategies.

Smaller CRAs, particularly in Europe, have deployed significant efforts to expand. However, their market shares remain sorely limited, despite regulatory incentives to help them grow.

The market for credit ratings grew steadily until 2021, but was affected by high interest rates and difficult market conditions in 2022, and consequently dropped 24%, from US$10 billion in 2021 to US$7.7 billion last year (see Figure 1).

Figure 1. Credit Ratings Market Size

However, credit ratings continue to be a very profitable business. Both Moody’s and S&P’s ratings segments have operating margins of over 50%, although these went down by about 10% in 2022.

This profitability makes the credit ratings market very appealing to competitors, but market access remains difficult, if not impossible, for both existing CRAs of a smaller size and newcomers.

The Big Three’s oligopoly on the credit ratings market allows the agencies to take liberties in their pricing models, increasing fees dramatically over time for the same services. However, clients remain bound to them, and do not appear likely to switch providers.

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