The government plans to establish a National Rating Agency sometime this year, with participation from financial institutions, auxiliary organizations, and foreign credit rating agencies (CRAs), QazMonitor reports.
What happened: On April 22, the Agency for Regulation and Development of Financial Market (ARDFM) published a draft decree on the Open Legal Acts regarding the establishment of the National Rating Agency. The document is open for public discussion until May 16.
What it means: The establishment of the national credit rating agency will equip local credit institutions with effective methods and models to assess credit risks for corporate borrowers. This will lead to increased competition among credit institutions and reduce information asymmetry between them and borrowers, improving the availability of financing for the local economy.
ARDFM aims to create the National Rating Agency in 2024 and oversee its regulation and supervision.
The proposed Agency will include financial institutions, auxiliary organizations, and foreign rating agencies in its capital.
Authorities plan to set requirements for credit rating agencies and the corporate governance of the Agency. In addition, ARDFM looks to harmonize requirements for rating agencies within the EAEU to create a single market for rating services and ensure the free movement of capital.
Context: According to the ARDFM’s assessment of the local financial market, Kazakhstan has all the basic infrastructure in place, including two stock exchanges with clearing functions, a central depository with registrar functions, and credit bureaus. However, local credit rating agencies are absent due to the narrow market and lack of necessary legislation.
ARDFM shared data from Moody's, S&P, and Fitch indicating that by the end of 2022, credit ratings covered 46% of corporate bond issuers on the Kazakhstan Stock Exchange (KASE). They found out that the cost of credit ratings from international agencies varies – 1% for second-tier banks, 0.7% for corporations, and 4.5-12% for microfinance organizations, which analysts believe to be SMEs.
High costs for credit ratings from international CRAs led to many bond offerings by microfinance organizations and non-financial entities on KASE between 2020-2022 being conducted without a credit rating. This poses risks for unqualified investors and hampers issuers from fully leveraging the market to raise funds.
In addition, ARDFM highlights the National Bank's resolution No. 385 of December 24, 2012, establishing a list of recognized CRAs, including Standard & Poor's, Moody's Ratings, and Fitch Rating, among others. However, the document does not establish the supervision procedure and rules for the activities of such agencies in Kazakhstan. For example, ACRA, recognized by ARDFM, is regulated by the Bank of Russia.