Middle Frame

Commercial Banks:

On a selective basis, PACRA shall also assign individual and support ratings to commercial banks. These ratings would then be synthecised to generate standard long and short term ratings. This arrangement is expected to ensure that interested parties would be able to evaluate the reason only in some cases the high long and short term ratings of a bank might not appear consistant with the perceived financial strength of the bank.

Rating scales and definitions for support ratings and individual ratings are given below:

Individual and Support Rating Scale
(Applicable to Commercial Banks)

Individual Ratings:

PACRA's individual ratings, attempt to assess how a bank would be viewed if it were entirely independent and could not rely on external support. These ratings are designed to assess a bank's exposure to, appetite for, and management of risk, and thus represent our view on the likelihood that it would run into significant difficulties such that it would require support. The principal factors we analyze to evaluate the bank and determine these ratings include profitability and balance sheet integrity, franchise, management, operating environment, and prospects. Consistency is an important consideration.

A very strong bank. Characteristics may include outstanding profitability and balance sheet integrity, franchise, management, operating environment, or prospects.

A strong bank. There are no major concerns regarding the bank. Characteristics may include strong profitability and balance sheet integrity, franchise, management, operating environment or prospects.

An adequate bank which, however, possesses one or more troublesome aspects. There may be some concerns regarding its profitability and balance sheet integrity, franchise, management, operating environment or prospects.

A bank which has weaknesses of internal and/or external origin. There are concerns regarding its profitability and balance sheet integrity, franchise, management, operating environment or prospects.

A bank with very serious problems which either requires or is likely to require external support.

Note:

In addition, we use gradations among these five ratings, i.e. A/B, B/C, C/D, and D/E.

Support Ratings:

The Support Ratings do not assess the quality of a bank. Rather, they are PACRA 's assessment of whether the bank would receive support should this be necessary. We emphasize that these ratings constitute PACRA 's opinions, although we may discuss the principles underlying them with the supervisory authorities for their comment or endorsement.

A bank for which there is a clear legal guarantee on the part of the state OR a bank of such importance both internationally and domestically that, in our opinion, support from the state would be forthcoming, if necessary. The state in question must clearly be prepared and able to support its principal banks.

A bank for which, in our opinion, state support would be forthcoming, even in the absence of a legal guarantee. This could be, for example, because of the bank's importance to the economy or its historic relationship with the authorities.

A bank or bank holding company which has institutional owners of sufficient reputation and possessing such resources that, in our opinion, support would be forthcoming, if necessary.

A bank for which support is likely but not certain.

A bank, or bank holding company, for which support, although possible, cannot be relied upon.

A 2, 3, 4, or 5 Support rating may be qualified by the suffix "T". This indicates significant existing or potential transfer risk of economic and/or political origin which might prevent support for foreign currency creditors.

Note:

We emphasize that in our Support rating we are not analyzing how "good" or "bad" a bank is, but merely whether in our opinion it would receive support if it ran into difficulties.

*Commercial Banks:* On a selective basis, PACRA shall also assign individual and support ratings to commercial banks. These ratings would then be synthecised to generate standard long and short term ratings. This arrangement is expected to ensure that interested parties would be able to evaluate the reason only in some cases the high long and short term ratings of a bank might not appear consistant with the perceived financial strength of the bank. Rating scales and definitions for support ratings and individual ratings are given below:
Individual and Support Rating Scale *(Applicable to Commercial Banks)*
*Individual Ratings:*
PACRA's individual ratings, attempt to assess how a bank would be viewed if it were entirely independent and could not rely on external support. These ratings are designed to assess a bank's exposure to, appetite for, and management of risk, and thus represent our view on the likelihood that it would run into significant difficulties such that it would require support. The principal factors we analyze to evaluate the bank and determine these ratings include profitability and balance sheet integrity, franchise, management, operating environment, and prospects. Consistency is an important consideration.

A	A very strong bank. Characteristics may include outstanding profitability and balance sheet integrity, franchise, management, operating environment, or prospects.
B	A strong bank. There are no major concerns regarding the bank. Characteristics may include strong profitability and balance sheet integrity, franchise, management, operating environment or prospects.
C	An adequate bank which, however, possesses one or more troublesome aspects. There may be some concerns regarding its profitability and balance sheet integrity, franchise, management, operating environment or prospects.
D	A bank which has weaknesses of internal and/or external origin. There are concerns regarding its profitability and balance sheet integrity, franchise, management, operating environment or prospects.
E	A bank with very serious problems which either requires or is likely to require external support.
Note:
In addition, we use gradations among these five ratings, i.e. A/B, B/C, C/D, and D/E.

*Support Ratings:*
The Support Ratings do not assess the quality of a bank. Rather, they are PACRA 's assessment of whether the bank would receive support should this be necessary. We emphasize that these ratings constitute PACRA 's opinions, although we may discuss the principles underlying them with the supervisory authorities for their comment or endorsement.

1	A bank for which there is a clear legal guarantee on the part of the state OR a bank of such importance both internationally and domestically that, in our opinion, support from the state would be forthcoming, if necessary. The state in question must clearly be prepared and able to support its principal banks.
2	A bank for which, in our opinion, state support would be forthcoming, even in the absence of a legal guarantee. This could be, for example, because of the bank's importance to the economy or its historic relationship with the authorities.
3	A bank or bank holding company which has institutional owners of sufficient reputation and possessing such resources that, in our opinion, support would be forthcoming, if necessary.
4	A bank for which support is likely but not certain.
5	A bank, or bank holding company, for which support, although possible, cannot be relied upon.
T	A 2, 3, 4, or 5 Support rating may be qualified by the suffix "T". This indicates significant existing or potential transfer risk of economic and/or political origin which might prevent support for foreign currency creditors.
Note:
We emphasize that in our Support rating we are not analyzing how "good" or "bad" a bank is, but merely whether in our opinion it would receive support if it ran into difficulties.

© The Pakistan Credit Rating Agency Limited