Stock market over-heated

Call to make ratings mandatory, regulated framework for unlisted debts:

Sanjeevi JAYASURIYA

Ratings must be in the public domain and are significant for the investors and depositors as it is a risk rating. The stock market is over heated and the Government regulatory body should step in when the market is over-heated, Fitch Ratings Lanka Limited Country Head Maninda Wickramasinghe told Daily News Business.

“Ratings are given after evaluating strong criteria with a stringent process. Any intermediary having deposits from public such as banks, finance companies and insurance should be subjected to ratings. Globally there is 97 percent accuracy in ratings,” he said.

The ratings should be made mandatory for all intermediaries including insurance companies. It is important to have external and internal ratings for all entities in Sri Lanka that are in to banking activities. The cost of capital comes down when having external rating and companies that are large and take risk need to be rated.

“Rating is important to ascertain global and domestic risk. The rating model is constantly reviewed to upgrade and update to incorporate changes in the business environment. The markets have to open up.

“Provident Fund and Pension Fund need to invest in long-term assets such as toll highway projects, harbours and power stations. This market has to be rated,” he said.

The regulators need to focus on having necessary regulatory framework for unlisted debts to support the debt market opening for foreigners.

The economy needs to have a stable banking system, growing stock and bond market to develop the country, Wickramasinghe said.

“There is a role for the credit company and ratings are important to build trust and confidence. The investor in the stock market looks at the return. Ratings by an independent company will safeguard the interest of deposit holders or bond holders,” Wickramasinghe said.

Credit ratings are the opinion of the ability of an issuer to meet its debt obligation in full and on time. It is a transparent mechanism and disclosure related process.

The credit ratings look at qualitative and quantitative factors assessing the issuers ability to service debt obligations.

The investors and depositors have advantages of credit ratings to ensure informed opinion of a neutral third party, saving of research costs, enables accurate pricing of debts and corresponding to risk.

The issuers have the benefit of expanding and facilitate access to capital markets, low financing costs and banks and financial institutions have the opportunity of risk management and pricing of credit. Ratings act as early warning to regulators.

Fitch Ratings is one of the three global full-service credit rating agencies in the country. It has dual headquarters in New York and London. The agency has more than 50 locations and covers entities in over 90 countries.