The objectives and reasons of rating

The objectives of rating by the Central Bank are as follows:

• development of financial market, formation of the market of corporate bonds
• expansion of the role of financial intermediary and hence increase the effectiveness of monetary policy
• motivation of transparency of enterprises.

To implement the above-mentioned objectives some changes in the legal framework regulating banking system have been made by the CBA to encourage the process of rating. In particular, the rating grades given by the CBA to the entities are used as follows:
• to make the securities the subject of sale and purchase in repo operations, i.e. unlike the former principle by which repo agreements were concluded only for short-term government bonds, the CBA is now ready to accept the bonds of enterprises with high rating as a subject of sale and purchase in repo agreements;
• to apply the preferred scale of risk weighting of banks assets by the CBA for extending commercial banks’ loans to enterprises with high rating and for acquisition of bonds of enterprises with high rating by commercial banks. This will rouse commercial banks’ interest in crediting enterprises with high rating as well as in purchasing their bonds.

The scale of rating grades
The rating grades are given using the letters of the Armenian alphabet. The highest grade is “A+” (Ա+), the lowest one is “Z” (Զ) (for details see: “Procedure of Rating of Commercial Organizations by the Central Bank of Armenia”). The ratings from “A+” to “G-“ are considered investment rating, whereas the ratings from “D+” to “Z” are considered non-investment ratings.

Publication of rating
When the rating process is completed the commercial organization shall receive its rating grade and the detailed description of it. The rating can be published exclusively after the enterprise gives its consent in writing. The future updating and re-rating of once published ratings shall be carried out without additional consent of the rated organization. If a rated commercial organization does not submit any information on its financial and economic activities, the Central Bank shall terminate the process of rating of such organization and publish information about it at the CBA web-site. The rating grade of a commercial organization, its change or termination shall enter into force upon publication of respective information at the CBA web-site.