Rating agencies urged to provide realistic outlooks

Experts have called on credit rating agencies to provide clear and realistic outlooks to aid investment decisions amid economic instability.

This call was made at the 2024 International Credit Rating Webinar organised by DataPro Limited.

During a panel session moderated by the Chief Rating Officer of DataPro Limited Prince Oladele Adeoye, the experts pointed out that despite the challenging situation, investment opportunities abound in Nigeria and “the CRAs must provide a clear, realistic outlook for the benefit of investors”.

The panel included the Managing Director of Kenya’s Metropol Rating Agence, Mr Sam Amukoko; Group Managing Director of DLM Capital Group, Dr Sonnie Ayere and Managing Director of Chapel Hill Denham, Mrs Kemi Awodein,

A statement signed by DataPro’s Business Development Manager, Kehinde Rasheed, showed that the panellists also emphasised the importance of developing robust capital markets.

“A well-functioning capital market could help African economies, like Nigeria, withstand external shocks and reduce dependency on foreign debt. The recent moves by the African Union to establish homegrown Sovereign Rating were appraised by the panellists, viewing this as a positive development for both the continent and its economies,” the statement partly read.

In addressing the critical question of how macroeconomic conditions influence credit ratings, the panellists highlighted the challenges CRAs face in evaluating entities’ ability to meet debt obligations amid fluctuating economic factors.

It was noted that CRAs considered multiple variables, including the cost of borrowing and economic policies, to determine default probabilities and ultimately assign ratings that reflect the economic reality.

According to the panel, while no environment is perfect, there are always opportunities, even in challenging times.

It identified Nigeria’s infrastructure deficit, population growth, and potential in sectors as untapped opportunities for investors to generate returns.

“Despite the difficult terrain, Nigeria remains an attractive destination for investment, with the Commercial Paper sector offering significant prospects,” it said.

In his welcome address the DataPro’s founder, Abimbola Adeseyoju, reiterated the purpose of the webinar as a veritable vehicle to propagate the value propositions of the credit rating institution in Nigeria and the rest of Africa.

According to Adeseyoju, apart from the established role of providing opinions on the quality of assets and capital, credit rating agencies also serve as a complement to risk management procedures.

He also canvassed that CRAs should serve the common goal of catalysing the economy, promoting the real sector and creating wealth for a sustainable society.

In his speech, the keynote speaker at the event, international banking entrepreneur, Christian Ruehmer, urged banks to support businesses in the real economy.

Ruehmer opined that rating agencies and banks share a common goal in ensuring that businesses succeed.

“Rating Agencies embody the need for robust financial expertise and a deep understanding of a company’s financial standing. At the same time, they provide a product that is trusted and reliable. Banks rely on CRAs to facilitate their work and collaborate with the wider financial sector to offer credible insights into a company’s long-term potential.”

 “A developing country like Nigeria can only grow if it finds a better way to finance domestic companies. To do this, banks and investors must become more comfortable assessing these companies and that is when Credit Rating Agencies come in.”