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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

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 entities Banks, NBFCs, Insurance, AMCs, Corporate. We evaluate and analyze both qualitative and quantitative aspects and captures factors affecting the entity in the shortterm 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.

Rating Scale of (PACRA):

Long-Term Rating: 1-AAA: Highest Credit Quality 2-AA: Very High Credit Quality 3-A: High Credit Quality 4-BBB: Good Credit Quality 5-BB: Speculative 6-B: Highly Speculative 7-CCC, CC, C: High Default Risk Short-Term Rating: 1-A1+: Highest Timely Repayment 2-A1: Strong Timely Repayment 3-A2: Satisfactory Timely Repayment 4-A3: Adequate Timely Repayment 5-B: Susceptible Timely Repayment 6-C: Inadequate Timely Repayment 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 JCRVIS.

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.

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


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

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.


JCR-VIS:RCR-VIJ Releases the preliminary/initial rating to the press (takes2 - 3 weeks).