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Meaning and definition
Role and function of credit rating agencies
Global and Pakistan Credit rating agencies
and liabilities
CRA tells a lender or an investor the probability of
the subject being able to meet payment
obligations for the interest and capital repayments
Origin
First CRA was established in New York in 1841 to
Credit Ratings
Credit rating issued by CRA is an assessment of
Credit Ratings
CR are forward looking opinions about credit risk;
Agencies opinion about the ability of an issuer to
manage;
Building portfolio
Financial Contracts
Regulatory requirements
Trading
Pricing
decisions
Ratings published in form of reports
attractive to investors
Corporations can borrow money more cheaply if
they maintain a high credit rating on their debt
Demerits of CRs
Possibility of bias exist: Rating teams try their
Demerits of CRs
A credit rating is not a guarantee for financial
Demerits of CRs
Downgrading by Rating Agency: if the
Disclosure of Ratings
Rating agency should make public the definitions
Registration
Credit rating agencies are regulated by both SBP
and SECP
License is mandatory for carrying out the rating
business
Eligibility Criteria
Is set up and registered as a company
Has specific rating activity as one of its core
Eligibility Criteria
Promoters have professional competence,
Grant of Certificate of
Registration
SECP will grant to eligible applicants a Certificate
respective client
Fee charged
Clients agreement to cooperate and provide true
and adequate and timely information
Disclosure by CRA to client regarding the rating
assigned
Clients agreement to disclose the rating assigned
Monitoring of Ratings
CRA should continuously monitor the rating of
S&P
Fitch
Meaning
Aaa
AAA
AAA
Highest Quality
Aa1
AA+
AA+
Aa2
AA
AA
Aa3
AA-
AA-
A1
A+
A+
A2
A3
A-
A-
Moody
s
S&P
Fitch
Baa1
BBB+
BBB+
Baa2
BBB
BBB
Baa3
BBB-
BBB-
Meaning
Medium Grade: ADEQUATE capacity to
meet financial obligations
But adverse conditions or changing
circumstances are more
Likely to lead to a weakened capacity to
meet financial commitments
BB+
BB+
Ba2
BB
BB
Ba3
BB-
BB-
Moodys
S&P
Fitch
Meaning
B1
B+
B+
B2
B3
B-
B-
Caa
CCC
CCC
Ca
CC
CC
CURRENTLY HGHY
VULNERABLE to non-payment
PAKISTAN
Information System