The government of Pakistan (GoP) envisages greater role for
the private sector in economic development of the country. When decisions are
driven by market forces, utilization of each rupee becomes important. To help
the investors, in prudent decision making, credit rating of an entity and a
financial product becomes very important. The rating agencies have to assume the
responsibility of educating both the issuers as well as the investors. The
Management Association of Pakistan (MAP) recently arranged a very timely seminar
on Credit Rating Process. The speakers were: Faheem Ahmed and Jamal Abbas of
JCR-VIS, Etrat Rizvi of National Development Leasing Corporation and Ramon
Alfrey of Orix Leasing Pakistan.
In Pakistan, credit rating is still in its early stages.
However, regulatory agencies like Securities and Exchange Commission of Pakistan
(SECP) and the central bank have made it mandatory for financial sector entities
to obtain credit rating on regular basis. While credit rating was a requirement
for the leasing companies for past several years, the central bank has made it
mandatory for the commercial banks to have themselves rated by June 30, 2001.
While describing the role of credit rating agencies, Faheem
Ahmed said, "At present two credit agencies are operating in the country.
JCR-VIS (previously DCR-VIS) is one of them and has been in operation for more
than six years. Credit rating is a yardstick to access the risk and it is an
opinion expressing the capabilities of the entity to withstand the future. There
are two types of rating Prime and sub-prime and mostly companies publicize their
prime rating only. However, those companies which may fall in sub-prime category
work hard to improve their rating. Credit rating brings greater disclosure and
transparency. However, prudent decision making remains the responsibility of
Jamal Abbas explained the process of credit rating in detail.
It also emerged that credit rating is not only dependent on performance of the
entity but also on the factors affecting its performance and sovereign rating of
the country. There are internal and external factors affecting the credit rating
of an entity. Since the entities are evaluated on quarterly basis, there are
bright prospects for improvement, if management has a game plan.
Etrat Rizvi, Managing Director, National Development Leasing
Corporation narrated his experiences. He said, "Pakistan is gradually
moving away from centralized planning and allocation of funds on soft terms to
investment decisions being made on market based economy. The market forces guide
the allocation of resources and the government intervention is minimum. The role
of DFIs and subsidized credit is on the decline. Private sector investment is
driven by a philosophy of protecting the interest of all the stakeholders. Since
individual investors neither have the time nor the resources to assess
creditworthiness of a company, credit rating by the independent agencies has
assumed an important role in informed decision making."
Ramon Alfrey, General Manager Finance, Orix Leasing Pakistan
explained the importance of credit rating in resource mobilization. He said,
"We are part of an internationally known leasing company from Japan.
However, it was also mandatory for us to acquire credit rating at the time of
flotation of term finance certificates (TFCs). The past performance and detailed
game plan helped the Company in securing a better rating and ultimately float
TFCs at a very competitive coupon rate."
Importance of corporate governance, proper disclosure, self
and statutory regulatory mechanism are the key factors affecting the investment
climate in Pakistan. During the question and answer session the need for a
self-regulation was stressed. However, it was also felt that the SECP has a
greater role to play till the time self-regulatory regime assumes the major
Earlier Mr. Massod Naqvi, Vice President of MAP introduced
the topic and the speakers. At the end of the seminar he also proposed vote of
thanks and appreciated a very lively and interactive interaction during the
question and answer session.