TRIS and AFCRA Concerned about 'Rating Shopping'
as Credit Rating Competition Intensifies
The members of the ASEAN Forum of Credit Rating Agencies (AFCRA) met in Manila on 4 May 2000 for the AFCRA's 1999 Annual Meeting where among other topics they discussed how the increasing number of domestic credit rating agencies in the region is leading to fierce competition that pushes clients to go "rating shopping" to find the most satisfactory ratings. TRIS will take its turn as secretariat for the 2000 Annual Meeting of the AFCRA and will invite credit rating agencies recently formed in the Philippines, Indonesia and Malaysia to join the original four AFCRA members. The meeting will be held near the end of this year in Bangkok.
Dr. Warapatr Todhanakasem, President of Thai Rating and Information Services Co., Ltd. (TRIS) reported on 10 May 2000 the outcome of the AFCRA 1999 Annual Meeting in Manila. Dr. Warapatr said that the membership proposed holding the 2000 Annual Meeting in November in Bangkok. Because new rating agencies have been formed in three of the AFCRA member countries, Indonesia, Malaysia and the Philippines, TRIS will ask these agencies to attend the Bangkok meeting and join AFCRA.
The members will also use the 2000 Annual Meeting to develop an AFCRA website. The members agreed to organize the AFCRA 2000 Training Workshop on "Advanced Secruitization" for three days in July in Malaysia. Workshop instructors will come from an Australian firm.
In Manila, AFCRA's founding members, TRIS, Rating Agency Malaysia Berhad (RAM), PT Pefindo Credit Rating Indonesia Ltd. (PEFINDO) and Philippines Rating Services Coporation (PhilRating) discussed critical topics of mutual concern to the development of credit rating agencies in AFCRA member nations. These topics included: a review of AFCRA's objectives and missions and increasing competition in the credit rating business in member countries.
TRIS's President said that in the Manila meeting AFCRA members expressed concern about the effect of newly established credit rating agencies (CRAs) in the AFCRA and other countries in Asia. Some new CRAs are trying to compete with existing CRAs by snatching personnel, discounting service prices and assigning higher ratings. This has led some debt issuers to go "rating shopping" for the most satisfactory rating. Besides being unfair to investors, Dr. Warapatr said, this will obstruct the development of the bond market in the region. He said Thailand should have another CRA and it should be established as soon as possible. Competition would aid development of service quality and give investors alternatives. However, Dr. Warapatr added that he is somewhat concerned "rating shopping" could happen in Thailand as it has happened in other countries.
Dr. Warapatr insisted that in the face of competition TRIS will maintain the highest standards of credit rating analysis and offer superior quality service. TRIS will never drop its standards to gain more business, he said. Adhering to its standards will benefit investors, but it poses a risk to TRIS since some issuers may prefer having a higher credit rating from a more negotiable CRA. Dr. Warapatr said TRIS will run the risk of losing clients to maintain its organizational principle, which says "Integrity Without Compromise".
TRIS, Thailand's only credit rating agency was established in 1993. Its shares are held by the Ministry of Finance and other business groups interested in developing Thailand's capital market. No individual investor holds more than 5 percent of TRIS's shares. Currently, TRIS is experiencing an upsurge of credit rating clients as a result of the faster growth in Thailand's debt market.