MARC has published for comment an exposure draft which outlines the rating agency’s updated Financial Institutions Rating Criteria.

The exposure draft updates MARC’s analytical framework for financial institution ratings (FIR). Key highlights of the methodology include:

• Inclusion of a new non-domestic intrinsic credit strength rating (ICSR) that will be applicable to banks of all sizes and types, both domestic and non-domestic;
• Discussion of the implications and potential effects of ongoing regulatory reform on the credit strength of financial institutions and their ratings; 
•  An increased level of detail on the analysis we conduct for ICSR and issue ratings of financial institutions; and 
• Guidance on the approach that will be taken in the rating of non-domestic financial institution obligations under evolving bank resolution regimes.

The ICSR is a measure of the likelihood of bank failure in the absence of external support. The ICSRs are designed to be comparable across financial institutions, markets, and geography. They eliminate the clustering of credits from countries with high sovereign ratings together with the strongest Malaysian domestic credits at the top end of the rating scale that occurs with national scale ratings. The ICSRs will be assigned on the same long-term alphabetical scale as existing FIR. To distinguish ICSRs from other national scale ratings, the ICSRs will carry a (ND) suffix to denote “non-domestic”. An institution’s ICSR is transposed onto a national scale to derive its base FIR. The final FIR that is assigned incorporates external credit support elements.

MARC welcomes comments on any aspect of the draft methodology during the comment period and will consider all comments received in writing by November 17, 2017. Comments on the exposure draft should be sent to ratingmethodology@marc.com.my. All responses will be regarded as on the public record unless confidentiality is requested by the commentator. MARC will finalise the updated rating methodology following a review of comments received during the consultation period. Once finalised, the methodology will apply to both new ratings and existing financial institution ratings.

The aforementioned exposure draft can be accessed on MARC’s website at Updated Financial Institutions Rating Criteria (Exposure Draft).

Contact:
Milly Leong, +603-2717 2938/ milly@marc.com.my.