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Summary of HR Ratings de México, S.A. de C.V. Credit Assessments Mapping

Core Content

This report outlines the process and outcome of mapping HR Ratings de México, S.A. de C.V. (HR Ratings) credit assessments under the Standardised Approach (SA) for credit risk, as per the European Union's Capital Requirements Regulation (CRR) and its Implementing Regulation (EU) 2016/1799. The mapping aims to align HR Ratings' rating categories with a regulatory credit quality step (CQS) scale, ensuring consistency with prudential standards.

Main Points

1. Purpose of the Mapping

• The mapping exercise was conducted by the Joint Committee to align HR Ratings' credit assessments with a regulatory CQS scale.
• It is not a comparison of rating methodologies with other ECAIs nor does it represent the mapping ESMA will report on.
• The mapping reflects the correspondence between HR Ratings' rating categories and a prudential scale, applying an appropriate degree of prudence when quantitative evidence is insufficient.

2. Methodology

• The methodology follows the Implementing Regulation, which combines quantitative and qualitative factors.
• Quantitative factors are based on the long-run default rate and data from ESMA's Central Repository of credit rating data (CEREP).
• Qualitative factors are used to challenge the initial mapping, especially for rating categories with limited quantitative data.
• The internal relationship between HR Ratings' long-term and short-term rating scales is also considered in the short-term mapping process.

3. Rating Scales and Definitions

• HR Ratings operates two main rating scales: Global Long-Term Rating Scale and Global Short-Term Rating Scale.
• Each rating scale includes various categories with specific definitions related to creditworthiness and risk.

4. Long-Term Rating Scale Mapping

• The mapping for the long-term rating scale is derived from the long-run default rate and the meaning of each rating category.
• For HR AAA(G) to HR BB(G), the CQS is assigned based on the number of defaulted and non-defaulted rated items and the prior expectation of equivalent international rating categories.
• HR C(G) and HR D(G) are both mapped to CQS 6, as they reflect a high probability of default.
• The initial mapping is adjusted based on qualitative factors, but no changes were proposed due to the alignment with the meaning and relative position of rating categories.

5. Short-Term Rating Scale Mapping

• The short-term rating scale is indirectly mapped using the internal relationship between long-term and short-term ratings.
• The final CQS for short-term ratings is determined based on the most frequent CQS associated with the corresponding long-term rating categories.
• Due to the equal risk weights assigned to CQS 4–6 under Article 131 of the CRR, the final CQS for short-term ratings HR4(G) to HR D(G) are all mapped to CQS 4.

Key Information

Rating Categories and Their Mappings

Short-Term Rating Categories and Their Mappings

Notes on Methodology

• The quantitative factors are based on the number of rated items and the long-run default rate.
• For HR D(G), no default rate calculation was made as it already reflects a default situation.
• The mapping for short-term ratings considers the internal relationship between long-term and short-term scales.
• The risk weight for CQS 4–6 is 150%, so the final CQS for short-term ratings is set to 4 to ensure consistency with prudential requirements.

Data Considerations

• CEREP data was used for quantitative analysis, but it did not include HR Ratings' credit ratings.
• Limited quantitative data led to a relaxed application of quantitative factors, allowing for more market competition and entry for newer ECAIs.
• The final mapping was based on both quantitative and qualitative assessments, ensuring alignment with regulatory prudential standards.

Conclusion

The mapping of HR Ratings' credit assessments under the Standardised Approach ensures that their rating categories are aligned with the regulatory CQS scale. This process balances prudential concerns with market realities, particularly for newer ECAIs with limited data. The final mappings reflect both the risk levels and the meaning of each rating category, ensuring consistency and compliance with EU regulations.