Rapid Ratings To Rate Non-Bank Lenders
- Rapid Ratings is to provide the first independent ratings service designed specifically for New Zealand based non-bank lenders such as finance companies, public debenture issuers, merchant banks, non-bank mortgage providers, property syndicates, solicitor nominee mortgages, and sharebrokers.
- The initiative is the direct result of an invitation from financial planners for Rapid Ratings to provide independent ratings and better risk management information for both investors and lenders.
- Rating of non-bank lenders will draw on sector specific information from the Rapid Ratings Corporate database, senior staff with extensive banking sector experience and on intensive on-site assessment.
- Rapid Ratings’ unique software can quickly and accurately provide corporate credit rating and financial health assessments on any company using income statement and balance sheet information. The system is industry specific and draws on a massive database of company information.
The $10 billion New Zealand non-bank finance market will for the first time have an independent rating service to provide increased confidence to investors and help finance companies make better risk assessments.
Independent corporate rating agency Rapid Ratings Pty Ltd will provide the service. Rapid Ratings has spent months researching and developing an industry specific rating service for non-bank finance companies after being asked by financial planners to enter the market. That market is unregulated, has no current independent rating service and lacks appropriate transparency, accountability and performance measurement, said Dr. Caragata.
Rapid Ratings Managing Director Dr Patrick Caragata said financial planners were now the main source of funds for most non-bank finance companies so their support for the move was significant.
“For instance, Auckland-based Wealthy and Wise Limited Managing Director Darryl Edmonds and two other financial planning companies, recently wrote to finance companies urging them to have their businesses rated by an independent third party, and signalling that eventually such a rating is likely to be a prerequisite for their placing business with a company.
“There is also a groundswell of interest from the finance companies themselves, who can see the benefit of improved risk assessment and management, as well as the potential for the market edge which a good rating may bring. Over the past few days we have fielded a number of calls from, and had several meetings with, non-bank lenders interested in using the service.
“We have developed an industry specific package which assesses income statement and balance sheet information against a non-bank finance sector database, which is paired with our qualitative credit rating (QCRTM). The QCRTM includes a week-long on-site assessment developed to assess performance in a number of areas including governance, operational risk, market risk and industry exposure risk.”
Rapid Ratings will also offer a portfolio ratings service so that NBFCs can minimize the risks in their investment and lending portfolio. “Our objectives are to enhance transparency, accountability and performance measurement,” said Dr. Caragata. The flow-on effects may well be enhanced investor confidence and minimising the risks of placing funds with high risk companies.”
Rapid Ratings’ pioneering of this product is characteristic of its development of new markets for ratings services. Dr. Caragata indicated that his company was focused on entering new markets where there is little or no competition.
Rapid Ratings’ unique software can quickly and accurately provide corporate credit rating and financial health assessments on any company using income statement and balance sheet information - once data has been entered, Rapid Ratings can produce a 37-page corporate credit rating report in seconds. When its portfolio rating service goes live on the web in several months, Rapid Ratings will be offering banks, investment funds and large creditors a customised, portfolio risk assessment service that will permit clients to make quicker exit and entry decisions and review the evolution of risk concentration across time.
Rapid Ratings’ technology is based on a scientific econometric and statistical modelling approach which draws on an extensive database of more than 25 years of data spanning more than a dozen countries cover more than 2 dozen industries. The corporate credit models apply 62 variables to assess the financial health and credit risk status of thousands of public and private companies on an industry-specific basis.
“Our leading-edge software can also report financial distress up to two-three years ahead of the share price movement and existing rating agencies. An example is the HIH crash in 2000 - a Rapid Ratings report shows that the HIH liquidation could have been predicted in late 1996 and early 1997,” Dr. Caragata said.
“Rapid Ratings is currently pursuing a number of other significant opportunities in Australasia and will have a number of important new announcements over the coming months,” said Dr Caragata.
“We have products for the global market which offer substantial opportunities for Rapid Ratings in areas that the three major international credit rating agencies, Standard & Poors, Moodys and Fitch, have not yet addressed. We are not competing with them. We are opening up new markets.”
- Rapid Ratings’ system was developed by Dr Patrick Caragata, who is best known in New Zealand for his earlier work in the area of tax reform.
- Dr Caragata is a Canadian and New Zealand citizen with a background in resource economics, banking, investment analysis, financial analysis, taxation and software development. He is the author of five books, including Business Early Warning Systems: Corporate Governance for the New Millennium, (Butterworths NZ, 2000). He currently divides his time between Brisbane and Wellington.
- The company is based in Brisbane and has offices in Wellington and Auckland. It is jointly-owned by Collection House Ltd (2/3) and Dr Caragata (1/3). Collection House, which has a market cap of A$450 million, is one of the top 200 companies in Australia and operates in the receivables management, collection and credit reporting business.
- Rapid Ratings is based in Brisbane and has offices in Wellington and Auckland.