Beijing authorities continue to rein in on risk with another regulator making the latest move calling out credit rating agencies for poor practice that has resulted mostly in the favor of issuers.
«[We have] noticed that examples of specific rating institutions' upgrades of issuer ratings are clearly above the industry average, and rating inflation and other potential risks exist,» according to a statement from the National Association of Financial Market Institutional Investors (NAFMII), a self-regulatory industry body under the central bank.
NAFMII’s claim was based on a review of 10 rating agencies including the wholly-owned China subsidiaries of S&P Global and Fitch Ratings.
Top officials throughout Beijing – most notably the People’s Bank of China – are making a move to rein in on risk, particularly in the property sector where it was recently unveiled to have significantly higher leverage than previously known.
Mostly Upgrades
According to NAFMII, there were 89 rating adjustments – of which only 35 were downgrades compared to 54 upgrades – during the quarter preceding the series of latest defaults which included AAA-rated state firms. Dagong Global Credit Ratings was singled out as the upgrade leader with 17 during the period and also led in upgrades (13) for issuers that changed rating agencies.
NAFMII specifically noted shortcomings with regards to rating models, databases, execution of rating business systems, quality controls of rating projects and incomplete information in filings.
In general, most Chinese corporate bond issuers are rated locally by agencies as AA or higher.
