The Role of Credit Rating Agencies in Developing Caribbean Corporate and Government Bond Markets - PowerPoint PPT Presentation

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

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

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 company
• Not a recommendation to buy, hold or sell the rated security

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

• Creation of market for corporate credit and pricing of credit risk
• 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

• Widen access to funding for smaller businesses
• 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

• 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 sector
• 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 system
• Basis for securitisation
• Unlocking liquidity in loan and asset portfolios

• Independence : Real & perceived
• Ownership
• Governance architecture
• Financial independence
• Conformance to recognized codes of conduct
• Transparency
• Integrity in analytics & operations
• Investment in market education & development

The Caribbean Perspective

• 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 market
• 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 S&P.
• Currently ratings being conducted in Barbados, Jamaica, OECS & T&T.

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 transparency
• 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 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

info@caricris.com / www.caricris.com

Tel: (868) 627-8879

Fax: (868) 625-8871