Capital Intelligence Definitions

INTRODUCTION

Capital Intelligence (CI) Capital Intelligence (CI) has been providing credit analysis and ratings since 1985, and now rates over 400 Banks, Corporates and Financial Instruments (Bonds & Sukuk) in 39 countries. A specialist in emerging markets, CI’s geographical coverage includes the Middle East, the wider Mediterranean region, Central and Eastern Europe, South Asia, South-East Asia, the Far East, and North and South Africa.

Having established a strong reputation in the area of bank analysis, CI’s range of services has expanded over time to include corporate credit ratings and the rating of bonds and other financial obligations. CI also provides analysis and rating services for Islamic institutions, including non-bank financial institutions. In addition, to meet the requirements of capital market participants in countries with low or sub-investment grade sovereign ratings, CI has adopted National Ratings, which provide country-specific rather than internationally comparable credit assessments.

The credibility of CI’s rating process and credit opinions is underpinned by the principles of independence, objectivity and analytical consistency. CI is a privately owned agency with no financial institutions or corporations among its shareholders. Rating procedures are documented and strictly followed and credit analysis is based on detailed, sector-specific (eg, bank or corporate) methodologies. Rating decisions are made not by one analyst but by a committee of analysts.

CI offers risk managers timely, impartial and forward looking analysis of counterparty credit risk ratings and credit trends. CI’s clients and subscribers include the world's leading commercial and investment banks, investors, central banks and regulators, international financial institutions, local banks and market participants, Islamic financial institutions, export credit agencies and government agencies.

The Company's head office is in Limassol, Cyprus with additional analysts based in Hong Kong and New Delhi, India.  CI has a wholly owned subsidiary in Lebanon under the name of Capital Intelligence Lebanon for Credit Rating.

Ratings Definitions

CI’s international credit ratings indicate the general creditworthiness of an entity (sovereign, bank or corporate) and the likelihood that it will meet its financial obligations in a timely manner.  Foreign currency ratings refer to an entity’s ability and willingness to meet its foreign currency denominated financial obligations as they come due. For banks and corporates, foreign currency ratings take into account the likelihood of a government imposing restrictions on the conversion of local currency to foreign currency or on the transfer of foreign currency to residents and non-residents.

Local currency ratings for non-sovereign issuers are an opinion of an entity’s ability and willingness to meet all of its financial obligations on a timely basis, regardless of the currency in which those obligations are denominated and absent transfer and convertibility restrictions. Both foreign currency and local currency ratings are internationally comparable assessments.

Foreign and local currency ratings take into account the economic, financial and country risks that may affect creditworthiness, as well as the likelihood that an entity would receive external support in the event of financial difficulties.

The following rating scale applies to both foreign currency and local currency ratings. Short-term ratings assess the time period up to one year.

Foreign Currency Long-Term Issuer Ratings

Investment Grade
AAA     The highest credit quality. Exceptional capacity for timely fulfilment of financial obligations and most unlikely to be affected by any foreseeable adversity. Extremely strong financial condition and very positive non-financial factors.

AA        Very high credit quality. Very strong capacity for timely fulfilment of financial obligations.  Unlikely to have repayment problems over the long term and unquestioned over the short and medium terms. Adverse changes in business, economic and financial conditions are unlikely to affect the institution significantly.

A          High credit quality. Strong capacity for timely fulfilment of financial obligations. Possesses many favourable credit characteristics but may be slightly vulnerable to adverse changes in business, economic and financial conditions.

BBB     Good credit quality. Satisfactory capacity for timely fulfilment of financial obligations. Acceptable credit characteristics but some vulnerability to adverse changes in business, economic and financial conditions. Medium grade credit characteristics and the lowest investment grade category.

            Speculative Grade
BB        Speculative credit quality. Capacity for timely fulfilment of financial obligations is vulnerable to adverse changes in internal or external circumstances.  Financial and/or non-financial factors do not provide significant safeguard and the possibility of investment risk may develop.

B          Significant credit risk.  Capacity for timely fulfilment of financial obligations is very vulnerable to adverse changes in internal or external circumstances. Financial and/or non-financial factors provide weak protection; high probability for investment risk exists.

C          Substantial credit risk is apparent and the likelihood of default is high. Considerable uncertainty as to the timely repayment of financial obligations. Credit is of poor standing with financial and/or non-financial factors providing little protection.

RS        Regulatory supervision (this rating is assigned to financial institutions only). The obligor is under the regulatory supervision of the authorities due to its weak financial condition. The likelihood of default is extremely high without continued external support.

SD       Selective default. The obligor has failed to service one or more financial obligations but CI believes that the default will be restricted in scope and that the obligor will continue honouring other financial commitments in a timely manner.

D          The obligor has defaulted on all, or nearly all, of its financial obligations.

Foreign Currency Short-term Issuer Ratings

Investment Grade
A1        Superior credit quality. Highest capacity for timely repayment of short-term financial obligations that is extremely unlikely to be affected by unexpected adversities. Institutions with a particularly strong credit profile have a “+” affixed to the rating.

A2        Very strong capacity for timely repayment but may be affected slightly by unexpected adversities.

A3        Strong capacity for timely repayment that may be affected by unexpected adversities.

            Speculative Grade
B          Adequate capacity for timely repayment that could be seriously affected by unexpected adversities.

C          Inadequate capacity for timely repayment if unexpected adversities are encountered in the short term.

RS        Regulatory supervision (this rating is assigned to financial institutions only). The obligor is under the regulatory supervision of the authorities due to its weak financial condition. The likelihood of default is extremely high without continued external support.

SD       Selective default. The obligor has failed to service one or more financial obligations but CI believes that the default will be restricted in scope and that the obligor will continue honouring other financial commitments in a timely manner.

D          The obligor has defaulted on all, or nearly all, of its financial obligations.

 

NOTES AND QUALIFIERS

Capital Intelligence appends "+" and "-" signs to foreign and local currency long term ratings in the categories from "AA" to "C" to indicate that the strength of a particular entity is, respectively, slightly greater or less than that of similarly rated peers. Rating symbols written in lower case (e.g. aaa/a1) indicate that the issuer has not participated in the rating process and CI has relied on publicly available information and other information sources it considers reliable.

Outlook – expectations of improvement, no change or deterioration in a bank or corporate rating over the 12 months following its publication are denoted Positive, Stable or Negative. The time horizon for a sovereign rating outlook is longer, at 12-24 months.

Qualified – in cases where data and/or co-operation are such that it is not possible to formulate ratings to CI’s high standards of robustness and reliability the letter “q” is appended to the ratings.