Caricris puts all its ratings on watch

The Caribbean Information and Credit Rating Services Ltd (Caricris), the region’s credit rating agency, has today placed all its ratings on rating watch – developing.

A Caricris rating is placed on rating watch when events occur that may affect the credit quality of the issuer/issue, the impact of which is either unclear or cannot be accurately assessed at this point in time. A rating placed under rating watch does not imply that the rating will necessarily change. In a release Friday, Caricris said the rating action is based on the widespread impact that the coronavirus (covid19) is having on global and regional economies and financial markets, which, if continued for a prolonged period, can adversely affect revenue, cashflows and the overall creditworthiness of all our rated entities.

Caricris’ ratings span diverse sectors including banking, insurance, mutual funds and other financial services, oil and gas, manufacturing, retail and distribution, tourism and property development. Rated entities are in 18 countries across the Caribbean, concentrated around Trinidad and Tobago (42 per cent), Jamaica (25 per cent), Barbados (9 per cent) and Saint Lucia (6 per cent).

The deteriorating global and regional economic outlook caused by the spread of the virus, combined with asset price declines and lower energy prices are creating a credit shock across many of the sectors and markets in which its rated entities operate, the agency said. Currently, impact estimates are subject to a high level of uncertainty.

The impact on individual economies will differ depending on the structure of each economy and its health going into the crisis. Countries that are less tourism dependent may be less affected, unless they are major commodity exporters.

For rated sovereigns, the resilience of the country’s economic base, access to rainy day funds and the speed and extent of policy response will determine the impact on their ratings. The credit impact on corporates would also not be uniform, with companies operating in industries most affected by cuts in discretionary spending being the hardest hit, including hotels and restaurants, retail, transportation and leisure.

On a positive note most banks in the region are going into this crisis well-capitalised and with acceptable risk management systems and, depending on the duration of the crisis, may just face lower asset quality and reduced profitability. The less diversified non-bank financial institutions may also have to contend with capital concerns.

The current financial market volatility, particularly the equity market decline and low interest rates, will likely weigh on the credit quality of insurance companies.

At the same time, the agency said it noted the highly accommodative monetary policy stances and aggressive fiscal stimulus packages being rolled out by Caribbean governments, which it believes will go a long way in cushioning the impact of the virus on businesses and their employees.

“In summary, the magnitude of the impact will vary significantly by country, industry and asset class and will depend on the duration. A severe but relatively short economic contraction will mainly affect our weaker credits and/or those in the most exposed sectors.

A prolonged recession however would likely have much broader implications. We will continue to closely monitor the impact of covid19 on the creditworthiness of all our rated entities and take the appropriate rating action over the coming months.”