May 22, 2014 / 3:22 PM / 3 years ago

Fitch Updates Supranationals Criteria; No Rating Impact

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Supranationals Rating Criteria here PARIS/LONDON, May 22 (Fitch) Fitch Ratings has updated its rating criteria for supranationals to include two amendments on the assessment of support and measurement of capitalisation. The changes do not have any impact on existing ratings and the principles of the overall rating approach remain unchanged. Supranational institutions are public entities controlled by several states, the so-called 'member states'. MDBs, whose main activity is to provide loans or other types of financing to states or private sector, account for the bulk of supranational entities rated by Fitch. To assess support, Fitch analyses shareholders' capacity and propensity to provide support. Support for multilateral development banks (MDBs) is generally provided through callable capital subscribed by shareholders. Under the new approach, shareholders' capacity to support is reflected by a rating equal to the higher of the average rating of key shareholders and the rating of the lowest-rated shareholder whose callable capital, when added to that of the higher-rated shareholders, ensures full coverage of outstanding net debt. Net debt is defined as outstanding debt minus highly rated ('AA-' or above) liquid assets. This rating can then be adjusted up or down by one notch to reflect shareholders' propensity to support. However, if the propensity of member states to provide support is deemed low by Fitch, then the support rating would not be taken into consideration and the IDR of the entity would solely be based on intrinsic factors. The other change relates to the measurement of capitalisation in the assessment of the intrinsic score. When assessing the intrinsic rating, Fitch attaches high importance to capitalisation, in particular the ratio of shareholders' equity to assets. In this methodology update, the total assets are adjusted by netting derivatives recorded in assets and liabilities. This change is justified by the need to harmonise the analysis of MDBs disclosing their accounts under IFRS rules with those using US GAAP. Other key measures of capitalisation, the share of paid-in versus callable capital and the ratio of debt to equity, are unchanged. The other variables and weights used in the computation of the intrinsic score remain unchanged. To determine an MDB's intrinsic rating, Fitch's scoring framework also takes into account the credit risk exposure on the loan portfolio, on treasury assets and on counterparties on derivatives. These are measured through traditional ratios (average rating of loans, NPLs to loans, provisioning rate, share of liquid assets rated 'AA-' or above). Particular attention is attributed to concentration risk, measured via the ratio of the five largest exposures to total loans. Liquidity is measured by standard ratios such as liquid assets to short-term liabilities. Fitch's scoring framework also integrates market and operational risks, which are measured via qualitative assessment. Other qualitative factors are taken into account, such as the internal risk management framework, a key element in the absence of international regulation on MDBs. Overall quality of management and strategy is also taken into consideration, with a view to determine the ability of the institution to achieve balanced growth and the capacity of the management to define a coherent strategy. Supranationals are not subject to national jurisdictions, wherever their head-office is located; governance rules are set by international treaties between member countries. Other supranational entities rated by Fitch are supranational administrative bodies and supranational financial guarantors; although the latter are also subject to the Insurance Rating Methodology. As MDBs can be defined as supranational financial institutions, this report falls under the Master Criteria Global Financial Institutions Rating Criteria. The report, 'Supranational Rating Criteria' is available at Contact: Eric Paget-Blanc Senior Director +33 1 44 29 91 33 Fitch France S.A.S. 60 Rue Monceau 75008 Paris Amelie Roux Director +33 1 44 29 92 82 Tony Stringer Managing Director +44 20 3530 1219 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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