Fitch Ratings have released a table for each country that it operates in detailing possible conversion values for local ratings to its international counterpart.
In doing so, Sri Lankan companies will be able to be compared to their international counterparts. Fitch detailed the conversion tables on a webinar held on June 24.
The revised National Rating Criteria aims to increase the transparency of national ratings by assessing the creditworthiness of issuers on both scales and creating/publishing dynamic correspondence tables that show the relationship between the two scales in each market.
Ratings will retain their relative properties and a company that is rated higher than one in a local rating will also be rated equally or higher in an international rating.
All ratings will begin on an international assessment and in the instance, this is not available an internal credit opinion by Fitch will be used. Key rating drivers in various sectors will remain with the international criteria.
The updated National Rating Criteria also now clarifies the ‘AAA(xxx)’ reference point: It represents the lowest international scale rating level that corresponds to ‘AAA(xxx)’ in a specific country. This reference point on the international scale may be below the best credit in the country, may not be the same as the sovereign rating, and will be set through an analysis of the strongest issuers in the country to determine the level that will allow for rating differentiation on the national scale.
Due to complex reasons, it can be that the Sovereign is not necessarily the highest-ranked institution in a country. Regional Credit Officer - APAC Dan Martin said, “In Sri Lanka’s case we have more than 10 percent of the cases both at the international starting point and at the national rating that is above the sovereign. To have all of those capped at AAA it would have lessened our ability to differentiate risk. That’s why we started the reference point at a B instead of a B-.”
20 entities in Sri Lanka are rated above the sovereign. Rating tables will be public and dynamically updated to reflect changing conditions.
Various factors will determine if an entity is impacted by the sovereign rating. Group Credit Officer Fitch Roelof Steenekamp said, “You will see in most cases the banks in Sri Lanka are constrained and would be rated AA+ on the national scale, could be rated higher. We see this in Latin America if a country goes into default because it has a high debt to GDP or other reasons it does not automatically mean that all entities in the country will default. We need to have the ability to differentiate risk. We can’t take everything down to the triple C category in the country.”
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