The Pakistan Credit Rating Agency Limited

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Rating Process

Credit rating is an interactive process relying primarily on information and interaction with the rater. It is supplemented with information obtained from outside independent sources. The entire process is aimed at evaluating financial strength of an entity to timely meet its financial obligations. PACRA follows a rigorous, objective and structured rating process at the onset of rating relationship to arrive at a rating opinion. The rating process, subscribes to rigorous quality standards. PACRA has developed comprehensive methodologies for different segments of entities – Banks, NBFCs, Insurance, AMCs, Corporate. We evaluate and analyze both qualitative and quantitative aspects and captures factors affecting the entity in the short-term and long-term. Our analyses broadly focus on ownership and governance structure of the organization, its management and control environment and evaluation of business and financial risks.

Steps In Rating Process

PACRA’s ratings process is designed to ensure that all ratings are based on the highest standards of independence and transparency. At beginning of a new relationship, PACRA attempts to facilitate understanding of the rating process by sharing concise overview of PACRA and all steps involved in the process. The rating process progresses as follows – one step following the other until the finalization of the rating opinion:

Mandate Letter

Following a request from the entity / issuer for a rating, a mandate letter is sent to the client. Usually the processing time for sending the mandate is 1-2 working days on receipt of the request. Upon signing, mandate letter becomes a contractual agreement between the entity / issuer to be rated and PACRA to undertake a rating assignment. It has two separate mandates i.e.

1. Entity Rating Mandate
2. Fee Mandate

These mandates explain all the terms and conditions governing the rating relationship. The mandate is perpetual in nature and valid unless terminated by either party with an advance notice.

Rating Assignment Allocation

The entity is allocated to one of PACRA's rating teams, each headed by a Unit Head. The Unit Head takes the responsibility of supervising the rating assignment and designate it to its rating team. The initial introductory letter or email is exchanged briefing the time line for completion of the rating assignment and other modalities. Meanwhile, both PACRA and ratee furnish contact information on the designated liaison person (s) for ensuring smooth and speedy communication. The respective sub team manager and analyst take care of all aspects of the rating assignment as per the PACRA's guidelines.

Preliminary Analysis & Information Solicitation

A Preliminary study is conducted with a careful review of an entity's published information. From this review, analysts determine what additional information and data are needed. A detailed questionnaire is sent to the client for soliciting the required financial & non-financial information over and above that provided in their financial statements and the notes to their accounts. Upon receipt of the information, an initial rating assessment is made and discussed internally based on findings of the rating team. This would be followed by a site visit and management meeting, preferably at entity's head office.

Site Visit

The respective rating team conducts entity's head office and/or plant visit. The objective of which is to develop a better understanding of the organizational structure, and quality of the process, and conduct interview of key department heads and establish a sense of control environment prevailing in the entity. A detailed itinerary in advance is sent for the said visit.

Management Meeting

The purpose of Management Meeting is to assimilate the strategic view of the entity’s top management The meeting is wide-ranging, covering the entity's ownership, governance, financial position, future prospects, the economic environment and many other issues that can have a bearing on the rating. The participants of the meeting include the respective rating team, Unit Head and members of apex rating committee from PACRA and the senior management of the client including the Chief Executive Officer. Before heading for the management meeting, a formal agenda is sent, highlighting the areas where we expect to have the views and opinions of the entity’s top management. We expect to have a formal presentation for this meeting covering, at a minimum, those areas highlighted in the agenda.

Draft Rating Report Review

Subsequent to the management meeting, a draft detailed rating report is sent to the entity's management for their feedback on completeness and accuracy of the information contained in the report. If the report containing anything which is confidential, the client is also expected to communicate the same. The feedback is expected from the entity within five working days.

Rating Committee

A multi-layered, decision-making process is followed in assigning a rating. In finalizing the rating, the relevant team prepares a rating proposal based on the information gathered through the questionnaire and discussion at the Management Meeting and head office/site visit. This is presented to the rating committee, comprising at least one apex, two permanent members and the rating team. The RC is usually conducted within one week following the management meeting.

Pre-Publication Review

Subsequent to the Rating Committee, PACRA provides rated entities with draft press release and one page summary report in advance for pre-publication review. This is to avoid issuing any credit analyses that contain misrepresentations or are otherwise misleading as to the general credit worthiness of an entity / issuer.

Rating Review Appeal Policy

In case entity has disagreement with any of PACRA rating opinion – initial or surveillance – it has the option to appeal for review of rating opinion within 5 working days of the intimation of the rating action. The appeal process is covered by PACRA’s publicly available “Rating Review Appeal Policy”. Any disagreement with rating opinion does not restrict PACRA’s right to disseminate its updated opinion on public rating.

Once reviewed, the rating opinion is final. If no written appeal for rating review is submitted within stipulated time, the rating is considered accepted by the entity’s management.


Once the rating has been finalized, it is formally notified to the entity / issuer. The rating notification is usually accompanied by a final set of rating report and press release.

Public Dissemination

In an initial rating assignment, the entity's management has the prerogative to make this rating public or keep it confidential. The management is expected to take this decision within five days of notification. In case, the entity decides to go for public dissemination. PACRA does so through its website and other electronic media. It provides all the benefits of a publicly available independent rating opinion of the entity. In case the rating is not made public, any selective disclosure would not be allowed.

Once an initial rating of an entity is done and publicly disseminated, thereafter, as long as the rating mandate with PACRA remains outstanding, PACRA is duty-bound to inform the public of any change in the rating opinion and reserves the right to take such action without prior notice if so warranted by circumstances. PACRA attempts to achieve public dissemination of any updating opinion within two days of its notification.

In case of public rating, PACRA, in addition to respective press release, disseminates the summary report through its website. However, the detailed report is made available against a nominal fee.

Turnaround Time

Through experience, we see a timeline spanning six-to-eight weeks to complete a rating assignment. However, the cooperation of the entity's management with PACRA in terms of expediting the response to our questionnaire and other requests for information (via timely and quality information), whenever deemed necessary and sought during the course of the rating process, aids greatly in facilitating the completion of the rating process within the planned duration.


Ratings, once notified, remain under surveillance at all times. It is an on-going and a continuous process in line with best practices. Under the mandate, ratings are kept under continuing surveillance from the date of notification.

Relationship Termination

Instrument rating, in normal circumstances, is withdrawn only when the rated instrument is redeemed. However, in extreme scenario of non availability of requisite information PACRA may withdraw instrument rating. The entity rating is withdrawn either on the client’s decision to withdraw or in extreme cases owing to reluctance by the client to provide the required information. PACRA may suspend rating where circumstances prevent formation of rating opinion. In such cases PACRA makes all efforts to revive the rating at the earliest. The fact that the rating is currently withdrawn/suspended, along with the reason/s, is disseminated publicly.