Financial institution ranking - SQP Score - launch
Release date: 29 January 2005
financial institution ranking - SQP Score©
JDJL, the publisher of www.interest.co.nz today launched its proprietary SQP Score©
The SQP Score© is designed to assist investors in bank and finance company term deposits and secured and unsecured debenture stock to easily assess the relative financial positions of the companies offers such products.
The SQP Score© is a ranking code of New Zealand financial institutions, and is based on JDJL's extensive database of financial company performance. Summaries of individual company financial information is available free on-line at www.interest.co.nz
It tells the investor where a particular institution
stands amongst its peers in three separately scored
It is calculated twice each year from the financial accounts provided by each institution, either directly to www.interest.co.nz, or sourced from the data on the Companies Office website.
It is a relative ranking of all 80+ institutions offering fixed interest products to the public. It is not a credit rating, and does not replace credit ratings.
The SQP Score© is derived from a number of measures and ratios in each of the three attributes (Strength, Quality, Profitability), and combines them in an easy-to-understand letter code.
Scores for each attribute
are independently ranked, where
the top 20% in each section receive an ‘A’ designation,
the next 30% in each section receive a ‘B’ designation,
the next 40% in each section receive a ‘C’ designation,
the final 10% in each section receive a ‘D’ designation.
This understanding will help any investor or investment advisor make an informed choice of a shortlist of companies offering deposit products, by providing a useful and clear indication of a company’s relative financial strengths and weaknesses.
It may also aid the investor to understand the interest rate premium a bank or finance company is offering, over base government bond yields.
The SQP Score© is not a credit rating, and it is not a predictor of the future ability of any institution to pay interest at the level it advertises, nor a predictor that capital sums invested will be returned at the end of the term of a deposit.
The SQP Score© is derived entirely by numerical scoring and ranking and is not based on any personal judgments by JDJL.
As examples, listed finance companies Dominion Finance and NZ Finance show how this product works.
Dominion Finance has an SQP
Score© of BBA
NZ Finance has an SQP Score© of CBA
The first letter ranks relative Strength, measured by a number of financial statement ratios (eg: gearing, etc.) and the absolute size of its Total Assets. An SQP Score© of B indicates the company ranks against its peers in between the top 20% to 50% of NZ financial institutions.
A SQP Score© of C on the other hand indicates the company ranks against its peers between 50% and 90% of NZ financial institutions.
The same ranking system is used for the second letter, except this ranks Quality, measured by a number of financial ratios including, bad debt expense history, provisions for loan losses, maturity analysis of both Loans and Advances as well as the deposit liability to investors, and the absolute size of the Shareholders Funds invested in the business.
The third letter measures the rank of Profitability covering a range of weighted measures over a three year period. An A rank means that company ranks in the top 20% of NZ financial institutions.
The SQP Score© for all New Zealand financial institutions, including banks, are set out on the term deposit pages of the website www.interest.co.nz
All main banks score an AAA, as do Strategic Finance, UDC, Bridgecorp, and South Canterbury Finance.
TSB Bank, and Marac both score AAB. Of the Hanover Group companies, Elders Finance scores BAA, United Finance scores ABB, Nationwide Finance BBB, and FAI Finance scores BBC.
Like all other aides, it is not recommended you use the SQP Score© as your sole assessment tool. Nothing beats professional research into a specified requirement, and you should engage a professional adviser whom you trust before making any commitment to invest money. This SQP Score© is no substitute for the information each institution is legally required to give you. You should read and understand that information, and use it, and other information you receive from your professional adviser, before you invest.
However, this is an important resource for investors, and goes some significant way towards addressing the issues the Securities Commission highlighted in late 2004 relating to disclosures available to investors.
By making it an easy-to-understand ranking code, investors now have an easy-to-use tool to make a short list of potential companies to invest in for fixed-interest deposits. It may also help some investors assess the rate premium being offered for those products.
The SQP Score© and related logo is protected intellectual property and may only be used when licensed.
The website www.interest.co.nz sets out the full listings, has all the interest rates on offer in New Zealand, and backs them up with full access to the financial statements of almost all institutions.