Caribbean Information & Credit Rating Services Limited Introduction to Rating Methodologies

2 Presentation Structure  CariCRIS Rating Scheme  CariCRIS Rating Methodologies

3 Credit Rating - some fundamentals A credit rating is a current opinion on the relative creditworthiness of debt Ratings are: –Always relative –Within a defined frame of reference Ratings Frames of Reference can be: –Global –National –Regional

4 CariCRIS – Rating Products Regional Scale Ratings –Opinion on creditworthiness relative to other entities in a defined Caribbean region Foreign currency ratings Local currency ratings National Scale Ratings –Opinion on creditworthiness relative to other entities within a specific nation Local currency ratings

5 Illustration You want to compare …Use … ABC (T&T) Ltd US$ XYZ (J’ca) Ltd US$ Regional Scale Foreign Currency ABC (T&T) Ltd TT$ XYZ (J’ca) Ltd J$ Regional Scale Local Currency ABC (T&T) Ltd TT$ PQR (T&T) Ltd TT$ National Scale Local Currency

6 CariCRIS Rating Scale

7 What can be rated? Debt/Notional debt issued by: –Sovereigns –Manufacturing/ Service companies –Statutory Bodies/Public Sector Companies –Financial institutions & Banks –Finance Companies –Credit Unions –Holding Companies –Insurance Companies –Mutual Funds Such as: –Bonds –Bank Deposits –Commercial Paper –Term Loans –Preference shares –Secured debt –Unsecured debt –Mortgage backed securities –Asset backed securities –Structured obligations CariCRIS will primarily assign issue specific ratings.

8 CariCRIS Assessment Framework for Sovereign Entities Income & Economic Structure Income & Economic Structure CREDIT RATING CREDIT RATING Fiscal Policy Fiscal Policy Monetary & Exchange Rate Policy Monetary & Exchange Rate Policy Political Environment Political Environment Balance of Payments & External Liquidity Balance of Payments & External Liquidity

9 CariCRIS Assessment Framework - Sovereigns

10 Financial Risk Financial Risk Credit Risk Credit Risk Management Risk Management Risk Business Risk Business Risk Economy Risk Industry Risk Market Position Operating Efficiency Operating Efficiency Project Risk Project Risk CariCRIS Assessment Framework for Manufacturing and Service Entities

11 Risk Categories CariCRIS Assessment Framework for Manufacturing and Service Entities Risk Parameters INDUSTRY RISKBUSINESS RISK FINANCIAL RISK MANAGEMENT RISK PROJECT RISK Industry Characteristics Operating Efficiency Accounting Quality Track RecordConstruction / Stabilisation Risk Competition within industry Market Position Past Financials Financial Conservatism Post Implementation Risk Industry Financials Financial Flexibility Attitude to Risk Future Cash Flow Adequacy Payment Record Optional Parameters

12 Parent Support Stand- Alone Credit Rating Stand- Alone Credit Rating Parent Support Parent Support Parent’s Credit Quality Economic Rationale Moral Obligation Final Credit Rating

13 CariCRIS Assessment Framework for Banks & Finance Entities C APITAL ADEQUACY C APITAL ADEQUACY CREDIT RATING CREDIT RATING R ESOURCES A SSET QUALITY A SSET QUALITY L IQUIDITY / ALM L IQUIDITY / ALM E ARNINGS M ANAGEMENT The CRAMEL framework

14 CariCRIS Assessment Framework for Banks & Finance Entities

15 Financial Risk Financial Risk FSR / Credit rating FSR / Credit rating Management Risk Management Risk Business Risk Business Risk Industry Risk Market Position Parent Support Parent Support CariCRIS Assessment Framework for Life & Non-life Insurance companies

16 CariCRIS Assessment Framework for Life & Non-life Insurance companies

17 Our Mission To contribute to the development of a vibrant, integrated Caribbean capital market by setting the highest standards of credible independent analysis and opinion to enable informed financial decisions.

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