Moody''s Investors Service has today placed on review for downgrade 14 financial institutions in Jordan, Lebanon, Pakistan and Ukraine, whose standalone credit assessments are currently positioned above their domicile countries'' sovereign debt ratings.
Today''s announcements reflect Moody''s revised assessment of the linkage between the credit profiles of sovereigns and financial institutions globally, which is further discussed in the rating implementation guidance "How Sovereign Credit Quality May Affect Other Ratings" published on 13 February, 2012.
Consistent with this guidance, Moody''s expects to position the standalone credit assessments of most banks globally at (or below) the rating of the sovereign where the bank is domiciled. Moody''s expects to conclude the reviews within approximately three months. A detailed list of the banks and ratings affected by this announcement can be found at the end of the press release.
RATINGS RATIONALE REVIEW OF STANDALONE RATINGS ABOVE THE SOVEREIGN DEBT RATING: Moody''s believes that the creditworthiness of financial institutions with low cross-border operational diversification and/or high balance-sheet exposures to the debt of their domestic sovereign is closely linked to that sovereign''s credit strength. Banks with these characteristics are unlikely to have standalone credit assessments above the sovereign, which is often viewed as the lowest credit risk in the local market or currency.
During the reviews, Moody''s will assess the degree to which the issuer''s standalone credit profile is correlated with that of the sovereign. The reviews will take into account (i) the extent to which the banks'' business depends on the domestic macroeconomic and financial environment; (ii) the degree of reliance on market-based, and therefore more confidence-sensitive, funding; and (iii) direct or indirect exposures to domestic sovereign debt, compared with their capital bases.
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