LACK of a credit rating industry in Zambia has led to potential investors and lenders not to advance as much funding to the country as they could have, says Minister of Finance Alexander Chikwanda.
Mr Chikwanda said Zambia had vast potential for development but investment flows from both foreign and domestic sources had been hindered by obscure information on investment perspectives.
He was speaking in a statement read on his behalf by his permanent secretary Pamela Chibamba at the official launch of the first-ever corporate Credit Rate Agency (CRA) in Zambia.
CRA is an independent rating agency on the credit worthiness of an entity defined as the ability and willingness to settle financial obligations as they fall due.
The first corporate company to be rated by the agency is Zanaco bank which was rated with AA meaning it had high quality and very low credit risks.
He said credit ratings offered substantial benefits to the banking sector as well as other economic sectors.
“Ratings have the potential to improve market efficiency and financial stability in all three segments of the financial sector. I therefore call upon all regulators to look into how they can promote credit ratings in their respective segments,” he said.
Mr Chikwanda said the formation of the Industrial Development Corporation (IDC) was a clear demonstration of Government’s confidence in the capital markets.
He said the CRA had come at an opportune time so it could work with the IDC in ensuring State-owned enterprises obtained independent credit ratings and raised investor confidence as they entered in the capital market.
Speaking earlier, CRA chief executive officer Wilson Kalumba said the organization was the fourth in sub-Saharan Africa after the rating agencies licensed by authorities in South Africa, Nigeria and Senegal.
Mr Kalumba said CRA was set up to address a gap that had long existed in the Zambian economy – the qualification of credit risk.
He said CRA commenced operations in September 2014 after being licensed to operate by the Securities Exchange Commission (SEC).
He said the role of CRA was to measure credit risk and provide independent and credible information that guided investment.
“Ratings play an invaluable role in distinguishing the credit quality of corporates or entities. This credit quality differentiation is cardinal in the pricing of credit,” he said.
Mr Kalumba added that the rating culture helped to reinforce discipline in companies to run their business prudently.
Meanwhile, SEC chairman Chintu Mulendema said a rating was an important source of information for capital market investors.
Mr Mulemena said credit agencies promoted good governance and investor protection in the capital markets.
“Rating agencies play a key role in finance; however they received little public attention until the global financial crisis when Moody’s came under fire for giving overly optimistic ratings to complex mortgage investments,” he said.
He commended Zanaco bank for being the first corporate to be rated for being market leaders in fostering cultural change.
And Zanaco managing director Bruce Disk urged other banks to support CRA in order to measure their performance levels.