On 6 January, S&P published a request for comment on proposed changes to its criteria for rating banks and institutional brokers. The proposed criteria aims to provide additional insight into the way it rates banks, including Islamic banks, as well as enhance ratings comparability across sectors and geography.
With the proposed criteria, S&P intends to provide the market with an intuitive framework that guides the fundamental assessment of credit risks. We believe that consistent application of this framework should result in ratings that are forward looking and comparable across geography and industry sectors.
Standard & Poor's considers that Islamic banks differ from conventional banks in several important ways. Yet it assigns ratings to banks globally, regardless of their economic nature, legal form, or specific features. It assesses Islamic banks within the context of its criteria framework for banks, taking account of the specificities of individual entities. Its goal is to provide market participants with independent credit opinions, and it does not, for instance, assess or comment on Shari’ah compliance.
It has tested the proposed criteria on a general sample of banks it rates. The results indicate that the potential impact on ratings would likely be modest. The key factors driving potential rating changes include: greater importance of economic and industry risk factors; increased focus on credit stability; and greater emphasis on capital.. Once the comment period is over, it will review the comments and publish the updated criteria/methodology.
The proposed changes will not affect its existing criteria for rating Sukuk.
source: CPI Financial