|
Foreign and Local Currency Ratings
Foreign currency ratings refer to an entity’s ability and willingness to
meet its foreign currency denominated financial obligations as they come
due. Foreign currency ratings take into account the likelihood of a
government imposing restrictions on the conversion of local currency to
foreign currency or on the transfer of foreign currency to residents and
non-residents.
Local currency ratings for non-sovereign issuers are an opinion of an
entity’s ability and willingness to meet all of its financial
obligations on a timely basis, regardless of the currency in which those
obligations are denominated and absent transfer and convertibility
restrictions. Both foreign currency and local currency ratings are
internationally comparable assessments.
Foreign and local currency ratings take into account the economic,
financial and country risks that may affect creditworthiness as well as
the likelihood that an entity would receive external support in the
event of financial difficulties.
Ratings assigned to banks and corporates are generally not higher than
the local and foreign currency ratings assigned by CI to the relevant
sovereign government. However, it may be possible for an issuer with
particular strengths and attributes such as inherent financial strength,
geographically diversified cash flow, substantial foreign assets, and
guaranteed external support, to be rated above the sovereign.
The following rating scale applies to both foreign currency and local
currency ratings. Short-term ratings assess the time period up to one
year.
Long-Term Issuer Ratings
Investment Grade
AAA The highest credit quality. Exceptional capacity for timely
fulfilment of financial obligations and most unlikely to be affected by
any foreseeable adversity. Extremely strong financial condition and very
positive non-financial factors.
AA Very high credit quality. Very strong capacity for timely
fulfilment of financial obligations. Unlikely to have repayment problems
over the long term and unquestioned over the short and medium terms.
Adverse changes in business, economic and financial conditions are
unlikely to affect the institution significantly.
A High credit quality. Strong capacity for timely fulfilment of
financial obligations. Possesses many favourable credit characteristics
but may be slightly vulnerable to adverse changes in business, economic
and financial conditions.
BBB Good credit quality. Satisfactory capacity for timely
fulfilment of financial obligations. Acceptable credit characteristics
but some vulnerability to adverse changes in business, economic and
financial conditions. Medium grade credit characteristics and the lowest
investment grade category.
Speculative Grade
BB Speculative credit quality. Capacity for timely fulfilment of
financial obligations is vulnerable to adverse changes in internal or
external circumstances. Financial and/or non-financial factors do not
provide significant safeguard and the possibility of investment risk may
develop.
B Significant credit risk. Capacity for timely fulfilment of
financial obligations is very vulnerable to adverse changes in internal
or external circumstances. Financial and/or non-financial factors
provide weak protection; high probability for investment risk exists.
C Substantial credit risk is apparent and the likelihood of
default is high. Considerable uncertainty as to the timely repayment of
financial obligations. Credit is of poor standing with financial and/or
non-financial factors providing little protection.
RS Regulatory supervision. The obligor is under the regulatory
supervision of the authorities due to its weak financial condition. The
likelihood of default is extremely high without continued external
support.
SD Selective default. The obligor has failed to service one or
more financial obligations but CI believes that the default will be
restricted in scope and that the obligor will continue honouring other
financial commitments in a timely manner.
D The obligor has defaulted on all, or nearly all, of its
financial obligations.
Short-Term Issuer Ratings
Investment Grade
A1 Superior credit quality. Highest capacity for timely repayment
of short-term financial obligations that is extremely unlikely to be
affected by unexpected adversities. Institutions with a particularly
strong credit profile have a “+” affixed to the rating.
A2 Very strong capacity for timely repayment but may be affected
slightly by unexpected adversities.
A3 Strong capacity for timely repayment that may be affected by
unexpected adversities.
Speculative Grade
B Adequate capacity for timely repayment that could be seriously
affected by unexpected adversities.
C Inadequate capacity for timely repayment if unexpected
adversities are encountered in the short term.
RS Regulatory supervision. The obligor is under the regulatory
supervision of the authorities due to its weak financial condition. The
likelihood of default is extremely high without continued external
support.
SD Selective default. The obligor has failed to service one or
more financial obligations but CI believes that the default will be
restricted in scope and that the obligor will continue honouring other
financial commitments in a timely manner.
D The obligor has defaulted on all, or nearly all, of its
financial obligations.
Capital Intelligence appends “+” and “-” signs to foreign and local
currency long term ratings in the categories from “AA” to “C” to
indicate that the strength of a particular bank is, respectively,
slightly greater or less than that of similarly rated peers.
Outlook – expectations of improvement, no change or deterioration
in a rating over the 12 months following its publication are denoted
Positive, Stable or Negative.
Qualified – in cases where data and/or co-operation are such that
it is not possible to formulate ratings to CI’s high standards of
robustness and reliability the letter “q” is appended to the ratings.
Financial Strength Ratings
CI’s financial strength ratings provide an opinion of a bank’s inherent
financial strength, soundness and risk profile. These ratings do not
address sovereign risk factors, including transfer risk, which may
affect an institution’s capacity to honour its financial obligations, be
they local or foreign currency. Financial strength ratings also exclude
support factors, which are addressed by foreign and local currency
ratings, as well as CI’s support ratings. However, financial strength
ratings do take into account the bank’s operating environment including
the economy, the structure, strength and stability of the financial
system, the legal system, and the quality of banking regulation and
supervision. Financial strength ratings do not assess the likelihood
that specific obligations will be repaid in a timely manner.
The following rating scale applies to the financial strength rating.
AAA Financially in extremely strong condition with positive
financial trends; significant strengths in other non-financial areas.
Operating environment likely to be highly attractive and stable.
AA Financially in very strong condition and significant strengths
in other non-financial areas. Operating environment likely to be very
attractive and stable.
A Strong financial fundamentals and very favourable non-financial
considerations. Operating environment may be unstable but institution’s
market position and/or financial strength more than compensate.
BBB Basically sound overall; slight weaknesses in financial or
other factors could be remedied fairly easily. May be limited by
unstable operating environment.
BB One or two significant weaknesses in the bank’s financial
makeup could cause problems. May be characterised by a limited
franchise; other factors may not be sufficient to avoid a need for some
degree of temporary external support in cases of extraordinary
adversity. Unstable operating environment likely.
B Fundamental weaknesses are present in the bank’s financial
condition or trends, and other factors are unlikely to provide strong
protection from unexpected adversities; in such an event, the need for
external support is likely. Bank may be constrained by weak market
position and/or volatile operating environment.
C In a very weak financial condition, either with immediate
problems or with limited capacity to withstand adversities. May be
operating in a highly volatile operating environment.
D Extremely weak financial condition and may be in an untenable
position.
Capital Intelligence appends “+” and “-” signs to financial strength
ratings in the categories from “AA” to “C” to indicate that the strength
of a particular institution is, respectively, slightly greater or less
than that of similarly rated peers.
Outlook – expectations of improvement, no change or deterioration
in a rating over the 12 months following its publication are denoted
Positive, Stable or Negative.
Qualified – in cases where data and/or co-operation are such that
it is not possible to formulate ratings to CI’s high standards of
robustness and reliability the letter “q” is appended to the ratings.
Support Ratings
CI’s support ratings assess the likelihood that, in the event of
difficulties, a bank would receive sufficient financial assistance from
the government or private owners to enable it to continue meeting its
financial obligations in a timely manner. Support ratings complement
CI’s financial strength ratings which, in effect, indicate the
likelihood that a bank will fail due to inherent financial weaknesses
and/or an unstable operating environment and therefore may require
external support to avoid defaulting on its obligations. Neither
financial strength ratings or support ratings take account of transfer
and convertibility risks associated with sovereign events. The overall
creditworthiness of an institution and default risk is captured by CI’s
foreign currency ratings. Foreign currency ratings take into account all
factors affecting the likelihood of repayment including inherent
financial strength, external support, the operating environment, and
sovereign-related risks.
Although subjective, support ratings are based on a thorough assessment
of a bank’s ownership, market position and importance within the sector
and economy, as well as the country’s regulatory and supervisory
framework and the credit standing of potential supporters.
The following rating scale applies to support ratings.
1. The likelihood of a bank receiving support in the event of
difficulties is extremely high. The characteristics of a bank with this
support rating may include strong government ownership and/or clear
legal guarantees on the part of the state. The bank may also be of such
importance to the national economy that state intervention is virtually
assured. The ability and willingness of potential supporters to provide
sufficient and timely support is extremely strong.
2. The likelihood of support is very high. The ability and
willingness of potential supporters to provide sufficient and timely
support is very strong.
3. The likelihood of support is high. The ability and willingness
of potential supporters to provide sufficient and timely support is
strong.
4. The likelihood of support is moderate. There is some
uncertainty about the ability and willingness of potential supporters to
provide sufficient and timely assistance.
5. The likelihood of support is low. There is considerable uncertainty
about the ability and willingness of potential supporters to provide
sufficient and timely assistance.
|
