Home Credit Ratings: Meaning & Use Rating types Rating of multilateral financial institutions (MFI)
Rating of multilateral financial institutions (MFI)
Wednesday, 19 September 2018

The multilateral financial institutions (MFI) and other supranational development institutions are subjects that include banking organizations founded by sovereign governments and regulated by international agreements between member countries, so that MFIs are imune to national regulatory standards. MFIs are generally established to pursue non-commercial or long-term investment projects that are difficult to finance through market instruments.

Due to close realtionship between MFIs and sovereign shareholders, in accordance with this methodology the creditworthiness of sovereingn shareholders should be assessed, because an MFI credit rating depends heavily on the ability of shareholders to support MFI through capital injections or otherwise.

MFIs are generally non-for-profit and politically driven organizations, which determines the specifics of their loan portfolio, risk management practices and performance indicators. In this regard, the analysis of MFI´s standalone creditworthiness (SCA) includes mainly those components which affect SCA.

What are the benefits of MFI rating and what does the rating serve for:

Rating as an investment analysis

  • In assigning a credit rating of an MFI, ERA takes into account both MFI´s SCA and the degree of support from sovereign shareholders.


Rating as a report on the economic activity of MFI

  • It is a comprehensive analytic document that illustrates development and current situation of MFI from the aspect of an independent evaluator based on international criteria.
  • It creates a platform aimed at negotiating commercial conditions with partners of MFI.


Rating as an instrument of operative control

  • It provides with immediate information on the current situation of MFI.

 

The rating process consists of gathering and processing of reference documents connected to MFI and the sovereign shareholders, of analysis and evaluation of reference documents by the rating agency and of approval of the rating by the rating committee.

The rating analysis  remains valid for the period of 1 year and during this period the MFI is being monitored by the rating agency.

The content of the rating report includes effects determining the SCA of assessed MFI, where the development of macroeconomic environment, political influence, shareholder structure and support, country risk, creditworthiness of sovereign shareholders and development of performance indicators are all taken into account.