PACRA Non-Banking Finance Companies Rating Scale and Definitions

This document provides an overview of PACRA’s approach to assigning credit ratings to Non-BaPakistan. Analyst Contacts Momin Farooque momin.farooque@pacra.com October 2024 Non-Banking Finance Companies Rating Criteria Scale Credit RaƟng Credit raƟng reflects forward-looking opinion on credit worthiness of underlying enƟty or instrument; more specifically it covers relaƟve ability to honor financial obligaƟons. The primary factor being captured on the raƟng scale is relaƟve likelihood of default. Scale Long-Term RaƟng AAA Highest credit quality. Lowest expectaƟon of credit risk. Indicate excepƟonally strong capacity for Ɵmely payment of financial commitments AA+ AA AA￾Very high credit quality. Very low expectaƟon of credit risk. Indicate very strong capacity for Ɵmely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. A+ A A￾High credit quality. Low expectaƟon of credit risk. The capacity for Ɵmely payment of financial commitments is considered strong. This capacity may, nevertheless, be vulnerable to changes in circumstances or in economic condiƟons. BBB+ BBB BBB￾Good credit quality. Currently a low expectaƟon of credit risk. The capacity for Ɵmely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic condiƟons are more likely to impair this capacity. BB+ BB BB￾Moderate risk. Possibility of credit risk developing. There is a possibility of credit risk developing, parƟcularly as a result of adverse economic or business changes over Ɵme; however, business or financial alternaƟves may be available to allow financial commitments to be met. B+ B B￾High credit risk. A limited margin of safety remains against credit risk. Financial commitments are currently being met; however, capacity for conƟnued payment is conƟngent upon a sustained, favorable business and economic environment. CCC CC C Very high credit risk. SubstanƟal credit risk “CCC” Default is a real possibility. Capacity for meeƟng financial commitments is solely reliant upon sustained, favorable business or economic developments. “CC” RaƟng indicates that default of some kind appears probable. “C” RaƟngs signal imminent default. D ObligaƟons are currently in default. Scale Short-Term RaƟng A1+ The highest capacity for Ɵmely repayment. A1 A strong capacity for Ɵmely repayment. A2 A saƟsfactory capacity for Ɵmely repayment. This may be suscepƟble to adverse changes in business, economic, or financial condiƟons. A3 An adequate capacity for Ɵmely repayment. Such capacity is suscepƟble to adverse changes in business, economic, or financial condiƟons. A4 The capacity for Ɵmely repayment is more suscepƟble to adverse changes in business, economic, or financial condiƟons. Liquidity may not be sufficient. RaƟng Modifiers | RaƟng AcƟons Outlook (Stable, PosiƟve, NegaƟve, Developing) Indicates the potenƟal and direcƟon of a raƟng over the intermediate term in response to trends in economic and/or fundamental business / financial condiƟons. It is not necessarily a precursor to a raƟng change. ‘Stable’ outlook means a raƟng is not likely to change. ‘PosiƟve’ means it may be raised. ‘NegaƟve’ means it may be lowered. Where the trends have conflicƟng elements, the outlook may be described as ‘Developing’. RaƟng Watch Alerts to the possibility of a raƟng change subsequent to, or, in anƟcipaƟon of some material idenƟfiable event with indeterminable raƟng implicaƟons. But it does not mean that a raƟng change is inevitable. A watch should be resolved within foreseeable future, but may conƟnue if underlying circumstances are not seƩled. RaƟng watch may accompany raƟng outlook of the respecƟve opinion. Suspension It is not possible to update an opinion due to lack of requisite informaƟon. Opinion should be resumed in foreseeable future. However, if this does not happen within six (6) months, the raƟng should be considered withdrawn. Withdrawn A raƟng is withdrawn on a) terminaƟon of raƟng mandate, b) the debt instrument is redeemed, c) the raƟng remains suspended for six months, d) the enƟty/issuer defaults., or/and e) PACRA finds it impracƟcal to surveil the opinion due to lack of requisite informaƟon. HarmonizaƟon A change in raƟng due to revision in applicable methodology or underlying scale. Surveillance. Surveillance on a publicly disseminated raƟng opinion is carried out on an ongoing basis Ɵll it is formally suspended or withdrawn. A comprehensive surveillance of raƟng opinion is carried out at least once every six months. However, a raƟng opinion may be reviewed in the intervening period if it is necessitated by any material happening. RaƟng acƟons may include "maintain", "upgrade", or "downgrade". Note: This scale is applicable to the following methodology(s): a) Broker EnƟty RaƟng b) Corporate RaƟng c) Debt Instrument RaƟng d) Financial InsƟtuƟon RaƟng e) Holding Company RaƟng f) Independent Power Producer RaƟng g) Microfinance InsƟtuƟon RaƟng h) Non-Banking Finance Company Disclaimer: PACRA has used due care in preparaƟon of this document. Our informaƟon has been obtained from sources we consider to be reliable but its accuracy or completeness is not guaranteed. PACRA shall owe no liability whatsoever to any loss or damage caused by or resulƟng from any error in such informaƟon. Contents of PACRA documents may be used, with due care and in the right context, with credit to PACRA. Our reports and raƟngs consƟtute opinions, not recommendaƟons to buy or to sell