VIS Scale Translation Methodology

VIS Scale Translation Methodology
JANUARY 2025
Credit Rating Company Limited
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VIS
Credit Rating Company Limited
SCALE TRANSLATION
METHODOLOGY vis.com.pk VIS Credit Rating Company Limited

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VIS
Credit Rating Company Limited
Scale Translation Methodology
JUNE 2026
Table of Contents
SCOPE OF CRITERIA...........................................................................................................................3
SUMMARY OF CRITERIA CHANGES……………………………………………………………………………………………..3
OVERVIEW OF THE CONCEPT OF TRANSLATION .............................................................................3
TRANSLATION METHODOLOGY........................................................................................................3
VIS’s INTERNATIONAL AFFILIATIONS...............................................................................................5
RATING SCALE & DEFINITIONS ...........................................................................................................5

VIS
Credit Rating Company Limited
Scale Translation Methodology
JUNE 2026
SCOPE OF CRITERIA
This methodology outlines the process for mapping of the Global Scale Ratings (GSR) onto the VIS National Scale ratings (NSR). Alignment of rating symbols used by VIS and the international rating agencies will facilitate in evaluation of the credit quality of entities or instruments involving foreign credit risk. VIS employs a robust process of "translation," where ratings assigned to foreign entities on a global scale are "mapped" onto VIS's national rating scale employing the Default￾Transition Principle approach. This methodology is rooted in the fundamental principle of aligning the performance of ratings of both the scales. The approach is complimented by the VIS's extensive database, build on internal research and over 25 years of rating history, encompassing a substantial number of issuers and defaults. SUMMARY OF CRITERIA CHANGES Scale Translation methodology dated January 2025 has been reviewed and the fundamental criteria as outlined in the aforesaid methodology remain the same. OVERVIEW OF THE CONCEPT OF TRANSLATION Generally, inter-scale comparisons between foreign currency ratings and national scale ratings can be made using three distinct approaches:

• Linking the Sovereign ratings of both jurisdictions;
• Independent credit assessment in both domains; and
• The Default-Transition Principles approach.
  VIS, however, employs Default-Transition Principles approach in mapping of international scale ratings to VIS rating scale. This approach is based on the principle of assessing ‘Probability of Default’ of entities and instruments. The Default￾Transition principles approach involves comparing indicators that provide historical performance of ratings, primarily default rates and rating transition statistics, between two rating scales to facilitate translation. Since ratings are intended to represent a measure of credit risk (expressed as either default rates or rating volatility), comparing these standardized metrics across global and national scales results in the most effective translation The translation of ratings under this approach is an ongoing process and with the ratings of parent companies having direct effect on the guaranteed and/or notched-up ratings of their local subsidiaries, changes therein may also result in upward or downward movement in NSRs of the subsidiaries in order to maintain alignment of ratings across global and national scales. TRANSLATION METHODOLOGY A significant portion of entities operating in our local markets are either wholly owned by foreign corporations or have substantial foreign corporate shareholding. Their global credit ratings serve as a crucial input in our credit risk assessment process and assigning national scale ratings. VIS’s ratings for these local entities are influenced, to varying extents, by the credit quality of their parent companies, as reflected in their existing credit ratings from our partner rati ng agencies or Nationally Recognized Statistical Rating Organization (NSRO). Within VIS’s analytical framework, these global-scale ratings are considered when evaluating related local entities or their issued instruments, regardless of whether the parent company provides explicit guarantees. When a parent company explicitly guarantees the rated debt, VIS's rating is determined solely by its evaluation of the guarantor's credit quality, as indicated by the translated rating. In cases where no explicit guarantee exists, VIS considers the standalone rating of the local entity, the translated rating of the foreign parent, and an analysis of their credit relationship. The translation or linking of a parent company's foreign currency rating to its local subsidiary depends on the nature and structure of the parent's investment. Direct investments are considered stronger than those made

VIS
Credit Rating Company Limited
Scale Translation Methodology
JUNE 2026 through legally separated entities like associates or SPVs. Additionally, mandatory consolidation of the local investment in the parent’s consolidated financial statements, regardless of the investment route, is viewed more favorably than when such consolidation is not required. The extent of the parent's shareholding and the involvement of its representatives in the subsidiary are also critical factors. Together, all these factors influence the adjustment of the notching applied to the local entity’s standalone rating to reflect the parent’s credit strength. In both scenarios, the foreign company’s credit quality is evaluated by translating its global-scale rating onto VIS’s scale. Leading international rating agencies generally use three distinct rating scales to cater to various types of investors:
global scale foreign currency ratings (FCR), global scale local currency ratings (LCR), and national scale ratings (NSR). LCRs and FCRs are designed for transnational investors, where FCRs exclude risks associated with transferring and converting local currency into foreign currency, typically into reserve currencies. Both types of global scale ratings allow for comparability across countries, with peer group analysis incorporating issuers worldwide. In contrast, NSRs are tailored to the needs of respective local financial markets and are not directly comparable to global scale ratings or NSRs of any other country. Peer group comparisons for NSRs are limited to issuers within the same country. Based on available empirical data, a foreign currency rating of 'A' on global scale, typically corresponds to a 'AAA' rating on VIS’s scale, while a 'BBB' rating on the global foreign currency scale generally aligns with the 'AA' category on VIS’s scale. Consequently, when international rating agencies adjust global ratings, these changes can sometimes lead to revisions in the ratings of domestic entities with exposure to foreign credit risk. The above methodology can be applied alongside all VIS Rating Methodologies that are based on the principle of assessing ‘Probability of Default’ of entities and instruments.

VIS
Credit Rating Company Limited
Scale Translation Methodology
JUNE 2026
VIS’s INTERNATIONAL AFFILIATIONS
VIS has a technical cooperation agreement with two credit rating agencies of the largest Chinese group CCX - China Chengxin International Credit Rating Co. Ltd (CCXI) and its wholly owned subsidiary China Chengxin (Asia Pacific) Credit Rating Co. Ltd. (CCXAP) operating in Hong Kong. CCXI is a leading provider of credit ratings in People’s Republic of China and enjoys the highest market share in the domestic rating industry. In addition, the Company also leads the market in panda bond ratings for issuers outside China, to facilitate access to Yuan denominated funds. CCXAP, licensed with Hong Kong Securities and Futures Commission, is wholly owned by CCXI and is the first Chinese credit rating agency operating in the international market. Both CCXI and CCXAP are also recognized by the Securities & Exchange Commission of Pakistan (SECP). VIS is a founder shareholder of the Islamic International Rating Agency (IIRA), Bahrain. Co-founders include coveted players in the Islamic market including the Islamic Development Bank (IsDB) and other prominent Islamic Financial Institutions. IIRA is an infrastructure institution for Islamic finance founded by the IsDB to promote capital markets development and serve as an alternate choice to other major rating agencies in OIC countries. With a strong foot print in the sovereign ratings, IIRA has conducted ratings in about 20 jurisdictions and is recognized by regulatory authorities in various countries in the Islamic countries including SECP. Moreover, IIRA is the only rating agency, outside the 3 major global credit rating agencies, recognized by IsDB. Japan Credit Rating Agency, Limited (JCRA) and VIS are into a Joint Venture Agreement since 2001 whereby JCRA is providing technical support in terms of methodologies and research. JCRA is the leading credit rating agency in Japan and is the only Japanese rating agency that is also officially registered in the US as Nationally Recognized Statistical Ratings Organizations (NRSRO) and certified in the EU. RATING SCALE & DEFINITIONS Rating Scale and Definitions may be accessed at (https://docs.vis.com.pk/docs/VISRatingScales.pdf).

VIS
Credit Rating Company Limited
Scale Translation Methodology
JUNE 2026
Islamic International Rating Agency – Bahrain – iira.com Credit Rating Information & Services Ltd. – Bangladesh – crislbd.com Japan Credit Rating Agency, Ltd. - Japan China Chengxin International Credit Rating Company Limited - China VIS Credit Rating Company Ltd. 128/C, 25th Lane off Khayaban-e-Ittehad, Phase VII, DHA, Karachi Tel: (92-21) 35311861-64 431, Block-Q, Commercial Area, Phase-II, D.H.A. Lahore - Cantt. Tel: (92-42) 35723411-13 www.vis.com.pk info@vis.com.pk DISCLAIMER Information herein was obtained from sources believed to be accurate and reliable; however, VIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Rating is an opinion on credit quality only and is not a recommendation to buy or sell any securities. Copyright VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.