Credit Rating Information and Services Limited (CRISL) is the first

credit rating A credit rating is an evaluation of the credit risk of a prospective debtor (an individual, a business, company or a government). It is the practice of predicting or forecasting the ability of a supposed debtor to pay back the debt or default. The ...

company in

Bangladesh Bangladesh, officially the People's Republic of Bangladesh, is a country in South Asia. It is the List of countries and dependencies by population, eighth-most populous country in the world and among the List of countries and dependencies by ...

. This company was incorporated with the

Registrar of Joint Stock Companies A company register is a register of business organizations such as companies in the jurisdiction they operate under. Registration is normally mandated by the government of that jurisdiction. A company register serves a purpose of protection, acco ...

in 1992 and Credit Rating Company rules 1996 as a recognized ECAI, and has been operating as the first rating company in the country since 1995.

Rating history in Bangladesh

Initially, all

credit risk Credit risk is the chance that a borrower does not repay a loan In finance, a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay ...

assessments were done internally by SEC Bangladesh (Security Exchange Commission of Bangladesh). which acts as the

regulatory body A regulatory agency (regulatory body, regulator) or independent agency (independent regulatory agency) is a government authority that is responsible for exercising autonomous jurisdiction over some area of human activity in a licensing and regu ...

of the external rating institutions. This scenario has been changing slowly as dependency and trust on ECAI is growing stronger.

Bank loan exposure rating in Bangladesh

Financing in Bangladesh economy is more

bank loan In finance, a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money. The document evidencing the debt ( ...

oriented compared to

capital market A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers ...

bond market The bond market (also debt market or credit market) is a financial market in which participants can issue new debt, known as the primary market, or buy and sell debt security (finance), securities, known as the secondary market. This is usually in ...

. Clients prefer availing banking facilities to finance their business for its easy accessibility and business-friendly relationship. In addition, the private sector is more "private limited", company oriented and structurally accessible to capital market for private limited companies is not open. Therefore, these companies are not required to go through stringent regulatory compliance to get finance. However, commercial banks are required to assess risk in standard format against all loans before the same is sanctioned. Considering the increase in risk in all economic sectors due to various reasons, the central bank asked all commercial banks to assess the client risk and tie the same with its capital adequacy requirement. This risks are to be assessed by External Credit Assessment Institutions (ECAI) as recognized by the

Bangladesh Bank Bangladesh Bank (BB; ) is the central bank of Bangladesh and is a member of the Asian Clearing Union. It is fully owned by the Bangladesh, Government of Bangladesh. The bank is active in developing green banking. and financial inclusion poli ...

under

Basel II Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. It is now extended and partially superseded by Basel III. The Basel II Accord was publ ...

Capital Adequacy framework. The '

Capital Adequacy A capital requirement (also known as regulatory capital, capital adequacy or capital base) is the amount of capital a bank or other financial institution has to have as required by its financial regulator. This is usually expressed as a capital ...

' for bank simply means, a bank must have adequate capital for risk absorption that are arising from various risks including financing. Under

Capital adequacy framework as adopted by

vide Circular No 9 dated 31 December 2008 and subsequently revised on December 29, 2010, the risk weight is to be carried out on the basis of the ratings of ECAI. If loans are not rated, for Tk 100 corporate exposure/loan, the risk weighted assets would be Tk. 125 (125% of the exposure) which translates to 12.5% capital requirement. The above is only in respect of credit risk.

also asked the scheduled banks to maintain capital for

Operational Risk Operational risk is the risk of losses caused by flawed or failed processes, policies, systems or events that disrupt business operations. Employee errors, criminal activity such as fraud, and physical events are among the factors that can tri ...

as well as for

Market Risk Market risk is the risk of losses in positions arising from movements in market variables like prices and volatility. There is no unique classification as each classification may refer to different aspects of market risk. Nevertheless, the m ...

. The above Bangladesh Bank circular warrants the banks to have more capital compared to the present amount in the bank reserves. Therefore, banks will be required to rate its loan portfolio by recognized rating agencies in order to keep the capital requirement lower.

Status of rating agencies in Bangladesh

has currently given recognition to Seven

Credit Rating A credit rating is an evaluation of the credit risk of a prospective debtor (an individual, a business, company or a government). It is the practice of predicting or forecasting the ability of a supposed debtor to pay back the debt or default. The ...

companies.

Who rates the raters

References

External links