Opening a New Era with Machine Learning in Financial Services? Forecasting Corporate Credit Ratings Based on Annual Financial Statements

Corporate credit ratings provide multiple strategic, financial, and managerial benefits for decision-makers. Therefore, it is essential to have accurate up-to-date continuously monitor companies’ financial situations when making decisions. Machine learning (ML)-based internal models can be used the assessment of using annual statements. Particularly, necessary check whether these ML achieve better results compared statistical methods. Due multi-class classification problem forecasting corporate ratings, development, monitoring, maintenance ML-based systems are more challenging simple classifications. This becomes even complex due required coordination with regulators (e.g., OECD, EBA, BaFin, etc.). Furthermore, must updated regularly periodic nature statements as a dataset. To address limited dataset, sampling strategies machine algorithms combined ratings. paper provides various implications presents an approach combining techniques. It also design recommendations services in finance industry on how fulfill existing regulations.