pakistan credit rating agency limited
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Credit Rating Agencies
1-Pakistan Credit Rating Agency Limited (PACRA):
June 15, 1994 - a joint venture agreement is signed between International Finance
Corporation (IFC) , Fitch Ratings , and Lahore Stock Exchange. This agreement heralded the
creation of Pakistans first credit rating agency, the Pakistan Credit Rating Agency Limited
(PACRA) on August 18, 1994. Introducing credit ratings at a time when even the concept of
free capital market was not well-rooted in the country was no easy feat; however, PACRA
accomplished just that. PACRA announced its first opinion in less than three months.
PACRA fast gained a recognition on the perceived value and integrity of its opinion. During
the initial years, PACRA relied heavily upon its technical partner, Fitch Ratings. The
technical collaboration with a global rating agency ensured that PACRA developed a high
quality rating process. This remained intact even after the mutually agreed decision in 2002
to terminate the said arrangement. Today, PACRA is recognized as a national rating agency
by apex regulators of the country, the Securities and Exchange Commission of Pakistan and
an external credit assessment institution (ECAI) by the State Bank of Pakistan. It has a
vibrant presence in the region. In 2010, PACRA moved across borders and started providing
technical collaboration to National Credit Ratings in Bangladesh. PACRA is one of founding
members of Association of Credit Rating Agencies in Asia (ACRAA).
Rating Process of PACRA:
Credit rating is an interactive process relying primarily on information and interaction with
the rater. It is supplemented with information obtained from outside independent sources. The
entire process is aimed at evaluating financial strength of an entity to timely meet its financial
obligations. PACRA follows a rigorous, objective and structured rating process at the onset
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of rating relationship to arrive at a rating opinion. The rating process, subscribes to rigorous
quality standards. PACRA has developed comprehensive methodologies for different
segments of entitiesBanks, NBFCs, Insurance, AMCs, Corporate. We evaluate and analyze
both qualitative and quantitative aspects and captures factors affecting the entity in the short-
term and long-term. Our analyses broadly focus on ownership and governance structure of
the organization, its management and control environment and evaluation of business and
financial risks.
Following is the Rating process of PACRA.
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Rating Scale of (PACRA):
Long-Term Rating: Short-Term Rating:
1-AAA: Highest Credit Quality 1-A1+: Highest Timely Repayment
2-AA: Very High Credit Quality 2-A1: Strong Timely Repayment
3-A: High Credit Quality 3-A2: Satisfactory Timely Repayment
4-BBB: Good Credit Quality 4-A3: Adequate Timely Repayment
5-BB: Speculative 5-B: Susceptible Timely Repayment
6-B: Highly Speculative 6-C: Inadequate Timely Repayment
7-CCC, CC, C: High Default Risk 7-D: High Risk Default
2-JCR-VIS Credit Rating Company Limited:
JCR-VIS is Pakistan's only data bank and financial research organization, operating as a Full -
service rating agency and known for providing high quality independent rating services in
Pakistan. Initially the company was incorporated as a joint venture between Vital Information
Services (VIS) , Karachi Stock Exchange, Islamabad Stock Exchange and Duff & Phelps Credit
Rating Co. (DCR) back in 1997.Subsequent to DCRs merger with Fitch IBCA, DCR sold
its interests in DCR-VIS to VIS. In 2001 JCR and VIS entered into a Joint Venture Agreement
whereby JCR acquired 15% share in DCR-VIS Credit Rating Co. Ltd. of Pakistan. As a result of
this agreement, the name of the company changed from DCR-VIS Credit Rating Co. Ltd. to JCR-
VIS.
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Rating Scales of JCR-VIS:
AA
Ratings denote a very low expectation of credit risk. They indicate very strong capacity for timely
payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events
A
ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is
considered strong.
BBB
Ratings indicate that there is currently a low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate.
BB
Ratings indicate that there is a possibility of credit risk developing, particularly as a result of adverse economic
change over time; however, business or financial alternatives may be available to allow financial commitments
to be met.
B
Ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued payment is contingent upon a
sustained, favourable business and economic environment.
CCC, CC, C
Default is a real possibility. A CC rating indicates that default of some kind appears probable.
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Credit Rating Process:
Clients:
Signs agreement for an initial rating.
Submits preliminary information materials.
CR-VIS
JCR-VIS:
Conducts a preliminary study.
Submits a detailed questionnaire to the issuer/client.
Client
Clients:
Provides detailed information in response to detailed
questionnaire.
JCR-VIS:
Conducts pre due diligence meeting analysis.
Conducts due diligence meetings (takes 4 -5 weeks).
J
JCR-VIS:
Conducts post due diligence analysis.
Brief for internal rating committee meetings is prepared.
CR
JCR-VIS:
Sub Committee recommends preliminary/initial rating.
Rating Committee decides the preliminary/initial rating.
Client
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Clients:
Receives the rating rationales and rating issues.
CR
JCR-VIS:
Notifies issuer of the preliminary/initial rating, deliberates on
appeals by client, if any.
Client
Clients:
Consents to release of preliminary/initial rating to the public in
case of non-mandatory ratings.
JJC JCR-VIS:RCR-VIJ
Releases the preliminary/initial rating to the press (takes2 - 3
w e e k s ) .