Introducing Standard & Poor's Bank Fundamental Strength Ratings
Standard & Poor's Ratings Services will now indicate its opinion of the fundamental strength on selected rated banks and financial institutions headquartered in Asia-Pacific (including Japan, Australia, and New Zealand) through Bank Fundamental Strength Ratings (BFSRs). BFSRs will run on a nine-point rating scale?that is separate from Standard & Poor's traditional ratings scale?using the symbols 'A', 'B+', 'B', 'C+', 'C', 'D+', 'D', 'E+', and 'E'.
BFSRs will be assigned on all banks in Asia-Pacific for which Standard & Poor's maintains Counterparty Credit Ratings, except for the following.
Subsidiaries of foreign banks.
Where the subsidiary:
Is a small player in its domestic market. That is, in the event the bank subsidiary represents 5% or less of the domestic banking market as measured by total assets. Standard & Poor's does not perceive that there is a sufficient level of meaningful interest from financial market participants to initiate a BFSR on such subsidiaries.
Has a parent bank domiciled outside Asia-Pacific and to which Standard & Poor's has not assigned a BFSR. Because of the high level of interaction between a parent bank and its subsidiary, it would be difficult to form an opinion on the fundamental strength of the subsidiary without a corresponding opinion on its parent bank.
Start-up banks.
For the purposes of this initiative, "start-ups" is defined as those banks with five years or less of operations, but does not include banks formed as a result of mergers. Standard & Poor's does not perceive that there is a sufficient level of meaningful interest from financial market participants to initiate a BFSR on such banks.
Banks with assigned public-information credit ratings.
Public-information credit ratings, designated with a 'pi' subscript, are not included for the purposes of this initiative.
BFSRs will be initiated by Standard & Poor's. BFSRs may be based solely on publicly available information and may be determined with or without the participation of the bank or financial institution's management.
Criteria
A BFSR represents Standard & Poor's opinion of a bank's fundamental strength or, more specifically, what has been informally called Standard & Poor's "status quo" rating on the bank. Standard & Poor's may also assign BFSRs on nonbank financial institutions.
A BFSR is Standard & Poor's assessment of what a single legal entity within a group would be rated incorporating the benefits or burdens of being part of the group, including such things as access to group distributions, involvement of group management, access to group resources (excluding capital contributions), and the benefit or detriment of the group's financial flexibility. A BFSR would not include any potential capital contribution from the group, regulator, or government.
In determining a BFSR Standard & Poor's assumes no extraordinary assistance from external parties, such as the bank or financial institution's owners or government institutions, and, conversely, no interference from government or regulatory action that may disrupt the ability of the bank or financial institution to service and pay out on its domestic and foreign currency liabilities. Interference from government or regulator includes any action taken by the government or regulator on banks in an emergency, such as a compulsory freeze on deposits and imposition of exchange controls.
The exclusion of such external factors implies that BFSRs do not indicate the overall likelihood of timely payment by the bank or financial institution. Rather, BFSRs indicate the likely prospect of a bank requiring external assistance if it faces financial distress.
In determining a BFSR, Standard & Poor's considers business and financial risk factors affecting the rated entity from the economy, industry, and regulatory environment in which the entity operates, and the entity's competitive position, business, and geographic diversification and distribution, quality of assets and investments, credit and market risk appetite, funding and liquidity position, capitalization, profitability, and risk-management systems. These risk factors include actions or inaction by the government, conducted in its normal course of activity, that may directly or indirectly affect banks. Examples of direct effects include changes by the government or regulator on the tax regime, lending requirements, or other regulations. Examples of indirect effects are the repercussions caused by financial stress faced by a government such as a decline in the value of government bonds, adverse change in a country's external balance of payments, increasing credit leverage by domestic corporates and households, and increased money-market volatility.
A BFSR is a form of long-term issuer credit rating. It is neither a Counterparty Credit Rating nor a substitute for one. A BFSR complements a traditional Counterparty Credit Rating and is intended to provide additional information regarding Standard & Poor's opinion on a bank or financial institution.
Bank Fundamental Strength Ratings Definitions
A
A bank or financial institution, in the absence of extraordinary assistance or interference from its corporate group, regulator or government, assigned a Bank Fundamental Strength Rating (BFSR) of 'A' has very strong fundamental strength compared with that of its global peers. 'A' is the highest BFSR assigned by Standard & Poor's.
B
A bank or financial institution, in the absence of extraordinary assistance or interference from its corporate group, regulator or government, assigned a BFSR of 'B' has strong fundamental strength. The bank or financial institution is, however, more susceptible to the adverse effects of changes in circumstances and economic conditions than those entities rated 'A'.
C
A bank or financial institution, in the absence of extraordinary assistance or interference from its corporate group, regulator or government, assigned a BFSR of 'C' has adequate fundamental strength. However, the bank or financial institution is more sensitive to uncertainties and adverse circumstances to a greater degree than higher-rated entities.
D
A bank or financial institution, in the absence of extraordinary assistance or interference from its corporate group, regulator or government, assigned a BFSR of 'D' is vulnerable to a greater degree, than financial institutions rated higher, to adverse circumstances in its operating environment.
E
A bank or financial institution, in the absence of extraordinary assistance or interference from its corporate group, regulator or government, assigned a BFSR of 'E' is likely to be facing significant weaknesses in its fundamental credit profile and may be in default on some or all of its obligations. The bank or financial institution's continued operation may be at the forbearance of the industry regulator, and external assistance may be necessary. 'E' is the lowest BFSR assigned by Standard & Poor's.
N.R.
An issuer designated N.R. is not rated.
Plus (+): The ratings from 'B' to 'E' may be modified by the addition of a plus sign to show the higher relative standing within the rating categories.
