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

development
The role of rating agencies
 CariCRIS: A rating agency for the
Caribbean
CariCRIS & CSME

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

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 Key elements of bond market
development

 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.

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

 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
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Role Of Rating Agencies - At
The System Level

• 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

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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 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

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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 & development

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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 market

• A regional credit rating agency is a critical ingredient

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CariCRIS
• 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.

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CSME and role of
CariCRIS
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
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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
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 THANK YOU

Caribbean Information & Credit Rating

Services Limited
info@caricris.com / www.caricris.com
Tel: (868) 627-8879
Fax: (868) 625-8871