Business

Saturday March 7, 2009

RAM Ratings CEO to focus on governance of credit rating agencies

By YAP LENG KUEN


NEWLY-APPOINTED CEO of RAM Ratings, Liza Mohd Noor, takes over the helm amidst very challenging times when credit rating agencies worldwide are suffering from a severe loss of confidence. In fact, the credit rating industry especially in the west is still struggling to regain public trust, a process which will probably be very long drawn.

But Liza is determined to keep her organisation above the turbulence.

“We are taking stock and learning from what’s happening in the US and Europe and its impact on the different marketplaces. We want to ensure that as a credit rating agency, we do not go down the same path,’’ she tells StarBizWeek in an interview.

Within its key domestic market, RAM Ratings has to be even more vigilant, she says.

“Given the current environment, we have to be on the ball all the time.

“We are also looking at what else we can do to export our services. We are keen on doing that but because of the rules and regulations, we are taking baby steps into these markets.

“There are also still quite a number of blue oceans in the local market that could benefit from rating services,’’ she adds.

RAM Ratings’s share in the sukuk and conventional bond markets is quite well-established, with a 90% share of bank ratings.

However, insurance ratings have not come up very much in terms of application and usage while more work can be done in Islamic banking.

We are looking to strengthen our analytical ability, says Liza.

Taking a leaf from overseas

An interesting area of focus is in the governance of credit rating agencies. RAM Ratings has come up with a code of conduct in line with international benchmarks.

It also has put in place a compliance officer responsible for all the checks and balances and review of processes in decision-making, manpower and database management. He has a direct link to the board of directors.

“We are looking to strengthen our analytical ability,’’ says Liza. A rating policy committee has been set up to ensure consistency across different ratings and groups of issuers. “This dedicated approach becomes more important when things are changing so rapidly, more so with the introduction of new instruments and issuers,” she says,

Changes in accounting and disclosure standards will have an impact on the rating action.

“We have to ensure we have taken into account the before and after scenario, as well as the reporting lines,” she says.

In the area of information, RAM Ratings has done a default study by notch ratings compared with previous studies which were done in relation to big rating categories.

The mid-term review of defaults was also introduced last year.

“These are some of the things we have started to put out in middle of last year. It’s an ongoing effort to instil that discipline,” she says.

“It’s interesting, challenging and does cause us sleepless nights.”

Markets in a tailspin

Liza finds it more challenging today compared with 10 to 15 years ago. Fortunately, the government had the foresight 19 years ago, when RAM was established, to make ratings mandatory.

Arising from that fairly long history, RAM Ratings now has access to the management of companies and a 19-year database of all kinds of sukuk ratings and financial information.

“From there, we can detect some cycles and trends, as well as spot inconsistencies,” she says.

A lot more due diligence is being done today than 15 years ago. No doubt, a chunk of the bond market is in project finance or bonds issued by financial institutions.

“In that sense, conceptually, you would have more stable ratings because it is driven by cashflow, ring fencing and concession agreements.

“We can see so far, the financial institutions are still fairly healthy (of course, we are still watching them on a weekly basis) and even if we project asset quality to take a turn for the worse, it is still manageable,’’ she says.

RAM is paying more attention to the corporates, especially those in the export-oriented sector.

A blessing in disguise arising from the Asian financial crisis is that many corporates in Malaysia today have returned to their core business, sticking to what they know best.

“Their balance sheets may still be fairly strong,” she says. “They may be making less money today but have accumulated sufficient surplus in the good years and are now very prudent.

“On that basis, they may be able to ride through the period. The monetary and fiscal measures by the government will take time to work through the economy. When it is all effective, it will probably bring back the confidence in the economy.”

“But for now, it’s going to be quite tough. The markets that we are exporting to have not really decoupled from the US and because these (Western) economies are at different levels of downturn, it will take time for us to be where we were before. After two years, there could be a slight recovery; rebuilding those markets will take another two to three years,” she reckons.

Current priority

With the subdued markets, it is possible that there will be less income from ratings. But Liza’s priority is to be on top of things and ensure that RAM Ratings maintains its reputation in the marketplace.

“At the end of the day, we remain a leader in the industry. Obviously, we take a lot of care. To build the market trust takes a long time and it is a challenge that keeps us on our toes.”

Companies don’t like to be downgraded, neither do investors like ratings to be changed as it will impact the value of their portfolios.

“But these are things we have to look at and ensure that the market understands why we do certain things,” she says.

The market has the right to ask questions and RAM Rating’s new code of conduct allows direct access to the CEO and deputy CEO.

“Anybody who thinks we are not doing our job properly, or there is a conflict of interest somewhere, can call me direct,” Liza says.

The ultimate would be to have a direct presence in the countries themselves and conduct ratings hands-on.

“We have to size up the opportunities and find the right people with the right talent,” she says. RAM Ratings has a pool of 50 analysts compared with just six when it started 19 years ago.

Currently, RAM has a 100% owned subsidiary in Sri Lanka and provides technical support as well as acts as a sounding board for them. They have their own management and analysts.

The holding company has a stake in Khazakhstan’s rating agency. RAM Ratings trains their analysts and shares technical expertise as well as methodology with them.

In fact, as early as the 1990s, RAM Ratings had provided technical support to new rating agencies in Asean.

It is currently the chairman for technical training of credit rating analysts for the Association of Credit Rating Agencies in Asia.

Rising from the ranks

Liza’s vision is for an Asian bond market which will facilitate funding and economic flows. RAM Ratings would be providing credit ratings in these markets.

“We have a leading position in credit ratings for foreign bond issuers tapping into the Malaysian bond market,” she says. “Last year, we expanded our rating portfolio to issuers from Dubai, Kuwait, Korea and a few more from Japan, Singapore. This is a stepping stone for us to get to know each other.”

Liza, an economics graduate majoring in accounting, started her career in RAM as an analyst.

In fact, she is one of the six analysts who joined the firm 19 years ago. At 42, her climb to the top has been filled with meaningful experiences that have enabled her to build on her strengths.

She has headed the teams for consumer, transportation and Islamic ratings. During the Asian financial crisis, Liza was attached to the Credit Debt Restructuring Committee (CDRC), looking at the restructuring of sectors (steel and public transportation) and government-linked companies.

The work at CDRC was a golden opportunity for her to combine her prior experience in receiverships and corporate advisory with her current job in credit risk rating.

“As CEO, you need to know the whole gamut of things,’’ she says. Her experience has also sharpened her client relationship management skills.

Liza counts herself fortunate to be in the RAM family that still enjoys the advice and support of the three pioneers – Tan Sri C. Rajandram. Wong Fook Wah and Suresh Menon.

“The environment here is good and we have an open door policy,’’ she says. “We are not surrounded by yes men,” There is a high retention of senior staff.

“Ratings is quantitative and qualitative. It is a prediction into the future. It is easy to have a knee jerk reaction but the presence of seniors lends to the stability and predictive value of the ratings.”

Peace of mind and family support are important to her. The mother of two is also a diver and has a black belt in aikido. Her work in ratings may be a serious thing but the energetic Liza still sets aside time to party with staff and clients.

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