Industry chiefs call for Asian credit rating agency

Senior industry figures in Asia, including outgoing Hong Kong Securities and Futures Commission (SFC) chief Martin Wheatley, argue the region needs an internationally recognised ratings agency to compete with Fitch, Moody’s and Standard & Poor’s.

“It would be great if Asia, China or Hong Kong had its own internationally recognised rating agency,” said Wheatley.

“They take time to develop and largely it’s about reputational and market penetration. There’s a strong desire to see other agencies enter the market… The current rating agencies are very US-centric.”

Wheatley said that while it would be positive for the region to have its own agency, such a development had to be “commercially driven”.

The SFC started regulating credit rating agencies in Hong Kong on June 1 and granted licences to five agencies employing 150 analysts. Licences went to AM Best Asia-Pacific and CTRisks Rating but the ‘big three’ represented the lion’s share of the market.

Some parties view this as a problem, particularly given their perspective on Asia credits.

“It is just bizarre that a lot of Asean + 3 sovereigns – despite much stronger credit fundamentals – remain lower-rated than their European counterparts, says Lee Kok Kwan, deputy chief executive at CIMB in Kuala Lumpur. “And markets certainly concur as both the cash bond prices and credit default swap levels trade at much tighter spreads than our ratings would suggest.”

Lee says that lower credit ratings affect the way Association of Southeast Asian Nation (Asean) countries raise capital: “Today, due to the international sovereign ratings that cap the ratings of banks and corporates, and also because of the high domestic savings rate, most Asean banks rely on local currency markets for their capital raising.”

Lee also says that ratings are crucial for risk-weighted assets so looking at average assets of single-A versus triple-B using Standard & Poor’s risk weights “for the same capital you can carry three times more assets – 20 v 60 times leverage”.

A further reason cited for Asia to have its own rating agency is that a lot of investable funds are Asian funds, yet there is a reliance on European and US rating agencies to decide how Asian investable money should be allocated.

“The market could really appreciate a different point of view as there are no real challenges to the big three – they think similarly on most matters so it needs to be a global agency with a wide regional presence and has a different perspective on things,” said Rajesh Mokashi, deputy managing director at India domestic agency Care Ratings in Mumbai.

“This could be a value proposition for the entire investor community. The understanding of these markets compared with Western economies is quite different.”

Kazuo Imai, head of the Japan Credit Rating Agency and chairman of the Association of Credit Rating Agencies in Asia (Acraa), meanwhile, is encouraging agencies within the region to improve their rating methodologies.

“Under Acraa we have a training committee to discuss best practice and a legal committee too. In the future we will try to establish one credit rating agency [within the region] but there is still room to improve.”

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