UCRG Aims to create a New International Rating Order
Credit rating agencies came under massive criticism during the global financial crisis. Angry investors claimed the rating agencies led them astray on the true risk of certain financial products. On Monday, a summit for the construction of an Asian credit-rating System was held in Beijing. That’s all in a bid to move away from the current US-centric ratings system dominated by S&P, Moody’s and Fitch. The world’s Big Three credit rating agencies - S&P, Moody’s and Fitch - have been under fire since the 2008 global financial meltdown. The agencies were blamed for awarding triple A ratings to companies and financial products that were hardly deserved. To learn from the mistakes and counterbalance the US dominance, a new international credit rating system was born.
Last year, China’s Dagong founded Universal Credit Rating Group along with Egan-Jones Ratings from the United States and Rus-Rating from Russia.To give a face-lift, well-known former politicians were hired. At the summit for the Construction of an Asian Credit System in Beijing, they said that as an economic powerhouse of the world, Asia needs to build its own credit rating system to better circulate capital across borders. The group of experts says new tools and instruments will help issuers of credit in emerging markets and improve access to capital markets.
What is for sure is that competition will be stepped up, local rating agencies will play a bigger role, and opinions on credit risk diversified.
A key challenge however will be to assign impartial and independent ratings for entities. But it will be an uphill battle. Not only are investors more familiar with the major rating agencies, but they increasingly want to conduct their own risk assessment and due diligence. and ultimately, it will still be up to the individual investors to determine which ratings are credible and useful.