To meet growing worldwide demand for ratings coverage of financial institutions—especially in emerging markets—Standard & Poor's has developed a systematic product nomenclature for expressing ratings when the level of access to information or management lags that associated with our traditional credit ratings. This ratings framework employs analytical procedures that parallel traditional credit ratings, but differ in that they are based on public disclosure made available by companies, as well as other secondary sources. Public Information ('pi') ratings are provided on entities on which Standard & Poor's believes there is demand for credit opinions, but for various reasons do not fall under the policies for assigning traditional credit ratings. They are identified by the 'pi' subscript attached to Standard & Poor's normal long-term rating symbols. This approach is in keeping with Standard & Poor's long-established practice of providing credit information where there is identifiable investor demand and sufficient information to provide credit opinions.
'Pi' ratings are a form of issuer credit rating that is similar to counterparty ratings. They are an indication of the overall likelihood that an institution will meet its financial obligations in a timely manner. They incorporate both the institution's own financial strength and all other factors that might influence the creditworthiness of a counterparty, including, for example, country risk and the likelihood of sovereign or parental support. They are not ratings applied to specific debt issues or programs and comment neither on the relative position of various obligations in the event of liquidation or bankruptcy nor on the likelihood of ultimate recovery.
Ratings with a 'pi' subscript are based on an analysis of an issuer's published financial information, as well as additional information in the public domain. They do not, however, reflect in-depth meetings with an issuer's management and are based on less comprehensive information than ratings without a 'pi' subscript. Ratings with a 'pi' subscript are reviewed annually based on a new year's financial statements, but may be reviewed on an interim basis if a major event that may affect an issuer's credit quality occurs. Outlooks are not provided for ratings with a 'pi' subscript, nor are they subject to potential CreditWatch listings.
Ratings with a 'pi' subscript generally are not modified with '+' or '-' designations. However, such designations may be assigned when the issuer's credit rating or insurer's financial strength rating is constrained by sovereign risk or the credit quality of a parent company or affiliated group.
Rating criteria used in assigning 'pi' ratings to financial institutions are the same as those used for traditional ratings. The analysis starts with an overview of the economic and industry risk faced by banks operating in a particular country. Facets of the business risk faced by a particular bank are then taken into account: geographic and product diversification, market position, management, and strategy. Financial risk considerations include asset quality, profitability, funding and liquidity, capitalization, and risk management. The impact of ownership by a governmental entity, corporation, or family group is also taken into account. In all of these areas, the amount of information that Standard & Poor's receives varies from country to country and bank to bank, based largely on what is considered public information. Where detailed information is not available, Standard & Poor's uses its best estimates, and where possible, general discussions with management in arriving at an overall appreciation of the impact of a particular area on an institution's creditworthiness. The rating analysis notes those areas where there are gaps in publicly available information. Standard & Poor's will not assign 'pi' ratings where information available in the public domain is not sufficient to enable Standard & Poor's to issue a credit opinion.
'Pi' ratings are "local currency" ratings. They take into account the economic and industry risk of both the country of domicile and other countries where a bank has major operations. These risks could include, for example, a major negative impact on the banking system if a country were to incur a foreign exchange crisis and sharply devalue its currency. However, local currency issuer ratings—including 'pi' ratings—do not take into account the possibility of direct sovereign action preventing timely payment of foreign currency obligations, and therefore can be higher than the foreign currency rating of the sovereign.
Institutions assigned 'pi' ratings are chosen by Standard & Poor's to provide broad coverage of financial institutions to potential counterparties and other subscribers. Unlike most traditional ratings, they are not assigned at the request of the entity being rated. Nevertheless, banks to which 'pi' ratings are assigned are contacted beforehand, notified of plans, and offered the opportunity to meet with analysts, although Standard & Poor's does not typically expect to receive material nonpublic information.
Surveillance of 'pi' ratings is typically performed annually; however, they may be reviewed on an interim basis, if events so dictate.
'Pi' ratings are based on public information, sometimes in markets or individual cases where such information does not meet the threshold required to assign a rating that is not identified with the 'pi' symbol. Therefore, it is not feasible to provide the same degree of opinion differentiation or rating precision as that available in Standard & Poor's traditional ratings. Consequently, the 'pi' ratings:
Are generally not modified by a plus ('+') or minus ('-') sign to indicate position within a category, except that such designations may be assigned in cases where sovereign risk or the credit quality of a parent constrains the rating;
Are not placed on CreditWatch; and
Are not assigned an Outlook.
'Pi' ratings represent a strong commitment by Standard & Poor's to balance the interests of all market participants. For investors and counterparties, 'pi' ratings provide expanded ratings coverage of financial institutions using Standard & Poor's well-known symbology. The 'pi' subscript highlights for all market participants that the ratings are based on public information.
