Role of credit rating agencies in developing Caribbean corporate

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					     The Role of Credit Rating Agencies
    in Developing Caribbean Corporate
       and Government Bond Markets

Caribbean Connect: High Level Symposium on CSME
                   Barbados: June 28-30, 2006
                                   S.Venkat Raman
                                   CEO & Chief Rating Officer

      Caribbean Information & Credit Rating Services Limited
Presentation structure

  Key elements of bond market
  The role of rating agencies
   CariCRIS: A rating agency for
   the Caribbean
  CariCRIS & CSME

What is a credit rating ?

 What a rating is:
       A current opinion on the relative creditworthiness of debt
       An debt specific evaluation
       Aimed at differentiating credit quality
       A response to the market’s demand for information

 What a rating is not:
       Not an audit of the issuing company
       Not a one time assessment of creditworthiness of the issuer
       Not a general purpose certification of “goodness” of a
       Not a recommendation to buy, hold or sell the rated security

Key elements of bond market

 Issuer diversity
 Investor diversity
 Transparency and disclosure
  Accounting standards – to give true financial picture
  Corporate governance – for predictability of corporate
  Credit ratings – to provide a comparative framework
 Independent regulator
 Market infrastructure – brokers, exchanges,
  settlement systems etc.

Role Of Rating Agencies In
Debt Market Development–
At The Core

   Creation of market for corporate credit and pricing of credit
      Readily usable risk indicator
      Tool for price-discovery, particularly for non-sovereign debt
      Creating of a proper yield curve
   Key information intermediary between issuers and investors
      Reduce information asymmetry between investors and issuers
      Facilitate comparison of investment options
      Facilitate pricing of credit risk
   Creation of secondary market in debt
      Creates liquidity in bond portfolios
      Leads to clarity in pricing of credit risk
      Makes structured debt issuances easier
   Building of financial awareness
      Best practices for company analysis, risk assessment            5
Role Of Rating Agencies -
At The System Level

 • Widen access to funding for smaller
 • Compliments regulatory oversight
    – Prioritises regulators’ concern areas
    – Prudential practises predicated on ratings

 • Effective self-corrective tool for
   managements & businesses
 • Enhances trust and market confidence
   =>Expands savings pool
Role Of Rating Agencies -
At The Application Level

• Estimation of credit risk
   – Unbiased opinion arrived at through structured process
   – Publicly available information
   – Single, easily comprehensible grade
• Basis for scientific risk management in banking
   –   Better lending decisions, less NPAs going forward
   –   Fundamental benchmarking for IRB (Basel) approaches
   –   Better pricing of credit risk
   –   Improved loan portfolios lend strength to the banking
• Basis for securitisation
   – Unlocking liquidity in loan and asset portfolios
Rating agencies:
Role Vs Obligations

• Independence : Real & perceived
   – Ownership
   – Governance architecture
   – Financial independence
   – Conformance to recognized codes of conduct
• Transparency
• Integrity in analytics & operations
• Investment in market education &
The Caribbean Perspective
The need for ratings
in the Caribbean
• Need for a vibrant bond market
   – Efficient financial intermediation and credit allocation
   – Alternate funding source to banks
   – Financial System Stability
   – Liquidity & financial crises management
• Caribbean
   –   Small sized economies limiting local bond market development
   –   Businesses with appetite for funds and vice-versa
   –   Credit research in public domain relatively scare
   –   Sizeable regional economy
   –   Increasing evidence of cross border financing

• The Caribbean needs an integrated, regional debt

• A regional credit rating agency is a critical ingredient

• First Caribbean rating agency and world’s first
  regional credit rating agency
• Launched in 2004/2005
• Fruition of an idea long espoused by CARICOM
• Promoted by regional Central Banks, CDB, IDB
  and other pan-regional institutions
• Shareholding by CRISIL Ltd., the 4th largest
  rating agency in the world and a subsidiary of
• Currently ratings being conducted in
  Barbados, Jamaica, OECS & T&T.

CSME and role of
Key Themes of CSME
• Integration of Financial Markets
• Seamless cross-border financial flows
 CariCRIS role & benefits
• Strengthen markets and facilitate unified regulation
   –   Strong impetus to capital market development;
   –   Energise the CSME initiative to create a unified debt markets
   –   Strengthen financial systems through diversified markets
   –   Investor Protection & better Market Discipline
• Facilitating regional penetration of companies Increases
   – Enhance credibility & independent profiling/risk analysis
   – Increased access to funding sources
• Facilitating cross-border investment/lending
   – Enhanced ability to compare credits across the region
   – Reduces information risk and facilitates informed decisions
The Road Ahead

• The Beginning : has been WELL DONE
• Rating Agency : needs to stick with its
  values and mission
• Policy Makers & Regulators: Need to
  act further – to consciously build
  ratings into financial architecture
• Investors & Issuers : The leaders need
  to show the way
       THANK YOU

Caribbean Information & Credit
    Rating Services Limited /
         Tel: (868) 627-8879
        Fax: (868) 625-8871

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