Polish banking agency enters ratings game

The ZBP announced last week that it initially wanted to set up a national rating agency on the Polish market before branching out into the rest of Central and Eastern Europe. The agency first would focus on analysis of domestic commercial and municipal bond issues.
Experts say the rating agency first must make a name for itself on accurate risk analyses. An agency's solid track record can only have a positive effect on Poland's fledgling capital market.
Now, large international agencies issue sovereign risk ratings for Poland and ratings for a number of Polish banks, but they haven't touched Polish commercial or municipal borrowers.
The rating agency would probably issue two ratings: one that rates the borrower within the Polish market and one that would be similar to other agencies for international issues.
"It will be interesting to see whether the criteria they adopt will be the same as the agencies in the rest of the world, and if so, if they'll get the same acceptance of the rest of the world," said Neil Milne, managing director of Copernicus Capital Management Sp. z o.o.
A ratings agency would probably make investors more confident, which would lead to a willingness to invest in debt on the Polish stock market, said Ramin Habibi, managing analyst for Cyprus-based Thomson Bankwatch-BREE. The ratings could have a "very positive effect on the capital market in Poland," he added.
While experts welcomed an agency that will evaluate Polish companies, they also warned of obstacles: building a reputation, persuading some businesses to open their books to scrutiny and counting on a reduction in the inflation rate.
As inflation declines, more people will be willing to invest long term and to borrow long term, and "this will give rating companies more business," Habibi said.
But more business for a rating company requires firms opening their books for analyses, and disclosure isn't a well-known practice in many emerging markets.
"In Poland and other countries in the region, there has been this reluctance to give out information," Habibi said, "but this is changing."
Ratings should improve the discipline of generating more detailed information for disclosure, he said.
Marcel Polk, general manager of Citibank Poland, said that if the ratings help make the Polish market transparent, investors will have a "better view of risks in different industries."
"In general terms, everything that helps to get a better understanding of companies in the business sector in Poland is good," Polk said.
Perhaps the biggest and longest- term obstacle is the rating agency's building its own reputation.
Reputation is the "fundamental added value" an agency brings to the market, but it's character that takes time to build, said J. M. McMullen, former Moody's executive and current ZBP adviser on the rating agency project, sponsored by USAID and expected to get under way by mid-year.
The published analyses, expert advisers and ensuring the agency's independence are proven ways toward building a sound reputation, he said.
"For a ratings agency to play its role ... it must be independent, particularly in respect to issuers who might be dissatisfied with the ratings assigned to the their debts," McMullen said.
McMullen said he anticipates domestic and international ownership, with Polish firms, not the ZBP or banks, sharing the majority stake.