Published on 08 Feb 2017.
RAM Ratings published 55 ratings on the global and ASEAN scales in 2016. Under RAM’s approach, the concept of sovereign weight to reflect country risk as well as transferability and convertibility risk is key to the ratings of corporates, financial institutions and other entities. Today, RAM released a criteria paper - Sovereign Weight Explained - to elaborate on and clarify how sovereign weights are applied.
“Based on our methodology, the ratings of non-sovereign entities are not constrained by the respective sovereigns’ ratings. Therefore, the rated entities’ inherent credit fundamentals will feature more prominently in their ratings,” highlights Esther Lai, Head of Sovereign Ratings at RAM.
Nonetheless, non-sovereign entities cannot be totally isolated from deteriorating economic conditions in the country; neither would they be able to circumvent the capital controls implemented when fiscal and external stress is elevated. “As such, sovereign weight is designed to better reflect these risks in the ratings of non-sovereign entities, without the undue influence of the sovereign’s creditworthiness,” she adds.
The criteria paper, Sovereign Weight Explained, can be retrieved from our website, www.ram.com.my.
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