Local banks have been urged to embrace credit ratings to boost their credit worthiness, especially among global funders.
Yinka Adelekan, the executive director of Nigeria-based research and credit risk management firm, Agusto, said credit ratings improves a bank’s chances of raising affordable capital, and enhances accountability.
Adelekan said credit rating helps provide independent information to treasurers and credit risk managers, and also makes it easy for financiers to access credit risk data of any given bank.
She was addressing financial sector stakeholders during a workshop on the impact of credit ratings on financial institutions and capital markets in Kigali on Tuesday.
Adelekan said rating institutions is to help stakeholders, like funders, to understand the risks of doing business with specific organisations.
“It is important for a bank to know its capital adequacy, risk management, loan losses, market share and sustainability. This is mainly possible when you embrace credit ratings,” Adelekan said.
She pointed out that it is through credit ratings that Rwandan banks will be able to show their financial strengthen to lenders and other stakeholders globally, adding that it also has a positive macro-economic impact on the economy.
Robert Mathu, the Capital Markets Authority boss, noted that the culture of credit ratings should be extended to other sectors of the economy, including industries and insurance companies.
Mathu pointed out that the rating contributes to the development of the financial and capital markets as it provides independent risk assessment reports. He added that credit ratings helps financial institutions access long-term loans, especially for big projects.
According to Agusto rating categories, AAA is the highest, meaning that a bank has overwhelming capacity to meet financial obligations, followed by A, indicating the capacity for timely payments, BBB reflects sufficient safety for timely payments of financial obligation, with circumstances that are most likely going to lead to defaulting.
B rating indicates instruments that are more susceptible to default, while C indicates a high vulnerability to default that can be reaffirmed through refinancing of the entire entity.
The lowest rating on scale is a D, representing an entity in arrears of financial commitments.
Latest Fitch credit rating indicated that Rwanda’s long-term foreign and local currency issuer default rating (IDR) is at B, and short-term foreign currency IDR is also B, reflecting the country’s Country Ceiling at B.