A significant drop in rating downgrades, particularly among financial companies, led to a slower pace of global credit decline in the third quarter, Moody’s Investors Service says.

While the portion of issuers seeing upgrades remained at the same 1.9% of the previous quarter, the pace for downgrades dropped to 3.9% in the third quarter, from 5.3% the in the second quarter, Moody’s reports in its latest quarterly report on corporate rating actions.

Overall, there were still slightly more than twice as many downgrades as upgrades in the third quarter (2.1 to 1), compared with almost three times the quarter before (2.8 to 1).

“A year ago, one in every thirteen issuers was on review for a downgrade; this has improved to less than one in twenty-five,” says Moody’s assistant vice president/analyst Hong Sherwin, author of the report.

Moody’s Watchlist suggests that the credit decline should continue to slow. As of September 30, there were 2.4 times as many issuers on review for downgrade compared to those on review for upgrade, a large drop from the 4.8 ratio three months before.

The Watchlist also implies that the financial industry, excluding non-life insurers, is poised to show credit improvement. On September 30, 2.6% of financial issuers, excluding the non-life insurers, were on review for upgrade, while only 1.6% were on review for downgrade.

“The passing of a wave of credit deterioration in the financial industry is responsible for much of the drop in downgrades,” says Sherwin. “Collectively, the financial industry issuers last quarter saw fewer than half the number of downgrades they did the previous quarter.”

In particular, only 0.6% of life insurers saw downgrades during the quarter after 6.7% saw them during the previous three months, while 5.2% of non-life insurers saw downgrades compared with 17.7% of them the previous three months, she says.

The drop in downgrades was also confined to investment grade debt. During the third quarter, speculative grade issuers continued to be downgraded at the same 5.4% clip of the previous quarter

Geographically, Europe showed the most dramatic decline in the rate of downgrades, with 4.5% of issuers downgraded last quarter compared with 7% the previous quarter. In North America the portion of issuers downgraded in the third quarter was 3.8%, compared with 5.4% in the second quarter.