The Securities and Exchange Commission (SEC)
The Ghanaian securities market will soon have credit rating agencies (CRAs), as the Securities and Exchange Commission (SEC) has issued draft guidelines for their operations in Ghana, almost a decade after declaring its intentions.
The draft regulations, which were issued this week, will facilitate and standardise the establishment and operation of credit rating agencies in the country.
Already, the Ghana Fixed Income Market (GFIM) is working closely with the Bank of Ghana (BoG), the Ministry of Finance, and the SEC to facilitate the establishment of a local credit rating agency.
According to Courage Martey, a senior analyst with Databank Research, introducing a local credit rating agency would be very critical in credit risk assessment and risk classification of local corporate issuers or borrowers.
“Firstly, a credit rating agency would develop a systemic and standardised method of risk assessment and classification of local corporates into various risk categories. This information would be very useful to investors in determining the appropriate risk premium and interest rates to charge on capital invested in potential issuers and borrowers,” Mr. Martey said.
Typically, credit rating agencies, such as Fitch and Standard and Poor’s, are responsible for rating corporations and their debt issuances. This allows investors to determine how risky a corporation and its debt are before making an investment purchase.
With the imminent introduction of CRAs in Ghana, market analysts are expecting that over time domestic interest rates will better reflect the risk associated with an issuer in the market.
“We expect this local rating agency to have a more localised perspective and rating model that is better suited to our domestic economic conditions, as opposed to the straightjacket approach you find with the international ratings agencies,” Mr. Martey said.
He further mentioned that the rating of indigenous firms could also open the financing window for them to raise capital beyond the domestic market, which would help dilute and, most likely, reduce the weighted cost of borrowing for indigenous firms.
The SEC guidelines extend to foreign credit rating companies that wish to issue ratings for Ghanaian securities and entities.
Among the criteria for eligibility is that the foreign company must have an established branch or subsidiary in Ghana; the group as a whole must be subject to external regulation that imposes appropriate standards on the operation of the CRA; and those standards should be followed by the branch or subsidiary in Ghana and adequately enforced by the home regulator.