KARACHI, July 4: The State Bank has invited applications from all rating companies that are interested in becoming external credit assessment institutions or ECAIs and meet the criteria it has outlined for this purpose. The interested companies may apply to the director of Banking Supervision Department of the central bank by furnishing the set of required documents, says a press release issued by the SBP on Monday.
The SBP has outlined the eligibility criteria for recognition of ECAIs for implementing the Basel II regulations.
The criteria which have been developed after due consultation with various stakeholders “will serve as a transparent policy document for evaluating and granting recognized status to ECAIs,” says the central bank.
According to the roadmap for the implementation of Basel II in Pakistan issued by the SBP in March this year, banks and development finance institutions or DFIs are required to initially adopt Standardized Approach of the New Accord. “Under this approach the capital requirement against credit risk is determined on the basis of risk profiles assessed by ECAIs duly recognized by the supervisory authority.”
The criteria provide a basis for the evaluation and recognition of the rating agencies that apply to SBP for eligibility as ECAIs. The Securities and Exchange Commission of Pakistan or SECP will continue to remain the supervisory/regulatory authority for credit rating companies in Pakistan and only those credit rating company that are duly licensed by the SECP will be eligible to apply to the SBP for ECAIs.
The recognition of a credit rating company as ECAI means that banks can use its risk assessment rating of their portfolio for the calculation of capital requirement under Basel II — a set of rules laid down by the International Bank for Settlements.
The eligibility of applicant ECAI shall be made on the basis of the following:
* ECAI should have the methodology of assigning credit rating that is rigorous, systematic, continues and subject to validation.
* The ECAI should be independent, free from economic or any external pressures that may influence its credit assessment.
* The risk assessment of ECAI previous year’s growth of 19.75 per cent led to an increase in total capacity utilization,” it said.
It said the demand surged in the last quarter of the last year after a somewhat lacklustre performance in the 3rd quarter due to unprecedented rains all over the country.
“During the period just before the announcement of the federal budget, the buyers curtailed purchase for they expected reduction in the excise duty and consequent reduction in the prices. But it did not materialise, leading to sudden surge in the demand and an unprecedented price hike at the retail level where cement is sold at rates as high as Rs325 per bag,” the APCMA said.
It said the APCMA had impressed upon its members the necessity of making available large-scale supplies in the market with a view to bringing down the prices raised by the retailers.
“Annual plant closures are being staggered and the members are being requested to expedite work on the new plants already in the pipeline. It is expected that the demand of cement will taper off during the monsoon season and prices will stabilise at the retail level.
The APCMA said several new cement kilns were expected to start operation during the financial year 2005-06. “Several of our members are undertaking optimisation of their units that will make available an additional 538,500 tons during the current year. Total available capacity during the current financial year is, therefore, expected to rise to 23.30 million tons, showing an increase of 5.39 million tons or 30 per cent over the previous year. It is hoped that the demand will remain buoyant and the markets will be able to absorb the large capacity which will become available shortly,” it said.
Mr Saigol also sought to refute charges of forming a cartel by the cement manufacturers. “All our members operate at different capacity utilization depending upon their particular situation and at different prices predicated on popularity of a particular brand and distance of the unit from its markets. We would like to impress upon the consumers that short term rate variations can take place due to market conditions and the recent hike could also be attributable to a desire on part of the public sector buyers to utilize their budget allocations before they lapsed on June 30, 2005. The consumers are advised to resist purchase of cement at the exorbitant levels and foil the designs of the unscrupulous elements upon which the manufacturers have no direct control.”