Bigger role for credit rating agencies eyed

As part of its regulatory power, the Securities and Exchange Commission (SEC) wants domestic credit rating agencies to play a bigger role in instituting good corporate governance standards.

SEC Chairperson Lilia Bautista told a recent international gathering at the Asian Development Bank that while credit rating is an effective tool of regulation, "there is also a need for refocusing regulation towards the role of rating agencies."

"Regulators have to put in place some regulatory aspects over said rating agencies so as to insure that ratings set by them are accurate, objective and reliable and that the credit rating agencies themselves have integrity, are independent and reliable, especially during a time of crisis," Bautista said.

She stressed that as regulators increase their use of credit ratings, these agencies must also face up to the challenge of being truly effective tools of regulation.

Bautista said rating agencies have become more important as regulations have veered away from the merit regulation to the full disclosure regime in the emerging markets, imposing a required rating instead of a compliance requirement for certain financial ratios.

Rating agencies, she pointed out, are now faced with challenges of globalized, technologically innovative markets and financial gurus and with competition from providers of more current, detailed and accurate information.

However, Bautista said credit rating agencies have become increasingly important and have found in niche in providing guidance to investors dependent on their valuable information before making informed and intelligent decisions.

She cited a proposed SEC amendment to its rules on the registration of long and short term commercial papers (CPs) which would now require a credit rating in lieu of the present ratios which need to be complied by issuers, except those issuing P50 million worth of CPs or less.

"It is proposed that standards have to be adopted for the accreditation of credit rating agencies, their rating criteria and their obligation to continuously monitor related issues," Bautista said.

Last year, the country’s biggest credit research and reporting companies formed an alliance aimed at upgrading the standards of the industry and bring about a wider awareness among the public on the credit worthiness of local companies.

The Philippine Credit Reporting Alliance Inc. (Philcrea) is composed of five credit reporting companies with a combined experience of more than 60 years: CIBI information Inc., Equifacts Information Inc., Asian Credit Consultant & Business Services, First Asia Corporate Business Connection, and Excellent Credit Information Inc. – Conrado Diaz Jr.