IOSCO reviewed the effect of COVID-19-related government support measures ("GSMs") on credit ratings and credit rating methodologies.
IOSCO assessed the impact of GSMs on the credit ratings and credit rating methodologies of the three largest credit rating agencies ("CRAs"). The scope of the report was confined to four key asset categories: (1) sovereigns, (2) financial institutions, (3) non-financial corporates and (4) structured finance.
In the report, IOSCO indicated that:
- GSMs have played a substantial role in reducing the "downward pressure on credit ratings";
- while GSMs have had an overall positive impact on credit ratings, their long-term impact cannot be fully discerned at this time;
- ongoing uncertainty and potential downside risks are associated with GSMs, particularly with regard to the pace and timeline of GSM withdrawal, the effectiveness and rollout of vaccines, the potential for COVID-19 resurgence and the necessity for further government action;
- despite the modification of certain assumptions and stress scenarios for the assessment of credit ratings to "reflect the change in the macro-economic outlook," no material changes were made to CRA methodologies, as CRAs viewed them to be "sufficiently flexible";
- CRAs assume that GSMs will continue until the economic environment is sufficiently stable to allow for phased withdrawal without causing substantial disruption; and
- CRAs do not anticipate that they will adopt additional wide-ranging credit rating reassessments unless there are substantial changes that affect their current base case macro-economic scenarios.
IOSCO concluded that, considering "the persistent uncertainty in the economic outlook," the effect of GSMs on credit ratings should be continually observed through traditional supervisory channels.
Primary Sources
- IOSCO Press Release: IOSCO Reviews the Impact of COVID-19 Government Support Measures on Credit Ratings
- IOSCO Final Report: Observed Impact of COVID-19 Government Support Measures on Credit Ratings
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