The information provided by external credit rating agencies may be of limited use in relation to a sophisticated credit risk management because

Limited Scope: External credit rating agencies typically focus on a narrow range of factors, primarily financial. Sophisticated credit risk management, on the other hand, may require a broader view that includes industry trends, competitive dynamics, regulatory changes, and other factors that could impact a borrower's ability to repay.

Time Lag: The ratings provided by external agencies often lag behind the current situation. By the time a rating downgrade occurs, the borrower's financial condition may have already deteriorated significantly. In contrast, sophisticated credit risk management systems aim to identify potential problems in real-time or even predict them in advance.

Reliance on Public Information: External credit rating agencies primarily rely on publicly available information. Sophisticated credit risk management may have access to more detailed, timely, and accurate information, especially in the case of existing customers.

Generic Ratings: The ratings provided by external agencies are generic and not tailored to the specific risk profile and requirements of a particular lender. Sophisticated credit risk management, on the other hand, would consider the specific exposure, risk appetite, and strategic objectives of the lender.

Potential Conflicts of Interest: There have been concerns about the objectivity and reliability of ratings provided by external agencies, given that they are often paid by the entities they rate. This could potentially limit their usefulness for sophisticated credit risk management.