credit rating
TRANSCRIPT
Introduction
Credit rating
Credit rating evaluates the credit worthiness of a debtor, especially a business (company) or a
government. It is an evaluation made by a credit rating organization of the debtor's ability to
pay back the debt and the likelihood of default.
It affects the interest rate applied to loans - interest rates vary depending on the risk of the
investment. The highest rating is usually AAA, and the lowest is D. Lenders use this
information to decide whether to approve a loan.
A low-rated security has a high interest rate, in order to attract buyers to this high-risk
investment. Conversely, a highly-rated security (carrying a AAA rating, like a municipal
bond which is backed by stable government organizations) has a lower interest rate, because
it is a low-risk investment. These low-risk bonds are available to a wide range of investors,
whereas high-risk bonds cater to a narrow investing demographic.
Credit rating organization
A credit rating organization is an independent company that evaluates the financial condition
of institutions that issue debt instruments and then assigns a rating that reflects its assessment
of the issuer's ability to make the debt payments. These institutions can be companies, cities,
non-profit organizations, or national governments, and the securities they issue can be traded
on a secondary market
Credit ratings are not based on mathematical formulas. Instead, credit rating organizations
use their judgment and experience in determining what public and private information should
be considered in giving a rating to a particular company or government. Potential investors,
customers, employees and business partners rely upon the data and objective analysis of
credit rating organizations in determining the overall strength and stability of a company.
Credit rating organization in Bangladesh
There are eight credit rating organizations in Bangladesh registered till to date. The credit
rating organizations along with the date of registration and address are below:
List of Credit Rating Companies
List of Credit Rating Companies
Sl. No.
Name of the Company Date of Issuance of Registration Certificate
Address
01. Credit Rating Information and Services Ltd (CRISL)
21/08/02 Nakshi Homes (4th and 5th floor), 6/1A, Segunbagicha, Dhaka-1000
02. Credit Rating Organization of Bangladesh Ltd (CRAB)
24/02/04 Chamber Building (6th Floor), 122-124 Motijheel C/A, Dhaka-1000
03 National Credit Ratings Ltd
22/06/2010 3 Bijoy Nagor, 3rd floor, Dhaka-1000
04 Emerging Credit Rating Ltd
22/06/2010 SHAMS Rangs, House #104, Park Road, Flat# A1, A2, Baridhara, Dhaka-1212
05. ARGUS Credit Rating Services Ltd.
21/07/2011 7 Suhrawardy Avenue, Baridhara, Dhaka-1212
06. WASO Credit Rating Company (BD) Limited
15/02/2012 Haque Chamber (Level-5), 89/2 West Panthopath, Dhaka-1205
07. Alpha Credit Rating Limited
20/02/2012 Navana Rahim Ardent (1st floor)39 Kakrail, Dhaka-1000
08. The Bangladesh Rating Organization Limited
07/03/2012 47 Karwan Bazar, Latif Tower (12th floor), Dhaka-1215
Detail information of these organizations is given below:
01. Credit Rating Information and Services Ltd (CRISL)
Credit Rating Information and Services Limited (CRISL) is the first credit rating company in
Bangladesh. This company was incorporated with the Registrar of Joint Stock Companies in
1992 and Credit Rating Company rules 1996 as a recognized and has been operating as the
first rating company in the country since 1995.
CRISL History
Credit Rating Information and Services Limited is a company that started its journey to
implement a Concept in Bangladesh – “Credit Rating”. Before CRISL, “Credit Rating” was
text paper words for the teachers and students of Bangladesh. The voyage of how CRISL
conceptualized this idea in 1995 and implemented it in Bangladesh and finally achieved its
operating license in 2002 – after almost eight years of struggle – has a long, interesting,
exciting and also painful history. CRISL is now the national flagship company representing
the profession at home and abroad.
Mission and Vision
Vision
To implement global standards of credit rating services
To enhance the image of corporate Bangladesh
To upgrade the corporate, economic and financial management of Bangladesh to
international level.
Mission
In order to achieve the above vision, we set our business targets with high degree of
professional standard and appropriate business and ethical code.
CRISL CEO:
President and CEO Mr. Muzaffar Ahmed FCMA, FCS
CRISL Rating Methodology:
While rating a particular organization, CRISL follows specific sector-wise rating
methodology. The methodologies have been designed after due consideration to the specific
insights of each sector with appropriate weightage to both qualitative and quantitative factors
of each sector. The qualitative and quantitative factors are converted to specific traits with
appropriate weightage for highest performance, lowest performance, industrial average etc. to
arrive at a meaningful rating of an organization. CRISL methodologies covers Banks,
Financial institutions, Micro Finance Institutions, Insurance Sector (both General and life),
Telecommunication sector, Mortgage Back securitization, Asset backed Securitization, Zero-
Coupon Bonds etc.
Credit Rating Process
Step by Step process
1. Primary discussion with the Client interested for rating
2. Execute Rating Contract with the client stating the terms and conditions including
Fees
3. Assign the task to an Internal Rating Team (IRT)
4. IRT formally approach the client for primary information through a set Questionnaire
with a given timeframe
5. IRT collates and analyzes information collected from the client as well as from
CRISL Database and identifies the gaps of further information from Market and
Client
6. IRT interacts with clients, visits site and analyzes data submitted by the Client
7. IRT organizes interview with various professional group and simultaneously interact,
exchange views with them and prepare Draft Report and forwards the same to the
Internal Review Committee (RC)
8. IRC forwards a copy of the report to the client for comment and factual confirmation
in the report with full supporting data/information
9. The Internal Review Committee reviews the Report, takes into consideration of the
comment of the client, proposes an initial rating and forwards the detailed Report to
the Rating Committee.
10. The Rating Committee reviews the report, awards final ratings and forwards the
report to the client. If the client accepts the report, it is published
11. If the client is not satisfied with the rating, it may submit appeal, with the reasons for
not accepting the rating.
12. Rating Committee considers the appeal if it has validity and convenes a meeting
having at least a new member in the Committee;
13. The Rating Committee awards the final rating
General capacity to work
CRISL is a credit rating organization and as such its services are within the credit rating and
related areas.
CRISL services consist of the following:
Credit Rating Services
CRISL offers various rating services. The rating services cover:
Corporate/ entity rating for direct listing or for IPO at premium
Bank/ financial institution rating
Insurance claim paying ability rating
Bank counter party rating
Bank loan exposure/ Facility rating
Rating of the structured products such as Zero Coupon Bonds. Mortgage backed or
asset backed securities, debentures, preference share financings, subordinated debt
products
Securitized transactions
Project financing ratings
Micro Finance rating
MFI- social impact rating
Educational Institution Rating
Corporate Governance Rating
Other Products & Services
CRISL is a credit rating organization and as such its services are within the credit rating and
related areas. Apart from credit rating services, CRISL provides the following:
Due Diligence Services
Assessments
Consultancy services
Advisory Services
General Credit Analysis for Financing Houses, Business Counterparts, Foreign
Investors, Joint Venture counter parts
Equity Research for the General Investors. Industrial Houses, Foreign Investors,
Research Houses and General Public.
02. Credit Rating Organization of Bangladesh Ltd (CRAB)
Credit Rating Organization of Bangladesh Ltd. (CRAB) was incorporated as a public limited
company under the Registrar of Joint Stock Companies in August 2003 and received its
certificate for commencement of business in November 2003. It has been granted license by
the Securities & Exchange Commission (SEC) of Bangladesh for operating as a credit rating
company in February 2004. The formal launching of the company was held on 5 April 2004.
Mission:
Significant contribution towards qualitative development of the money and capital
markets
Enhancement of transparency of financial information
Credibility of the corporate sector in Bangladesh for helping in the growth of
investment.
(CRAB) CEO
CEO & Managing Director Selim RF Hussain
CRAB Rating Scale
CRAB Long Term Rating Scale
CRAB Short Term Rating Scale
CRAB Long Term Rating Scale
Credit rating process
Rating is an interactive process with a prospective approach. It involves a series of steps. The main steps are described as follows:
1. Rating Request:
2. Rating Team:
3. Role of the Lead Analyst
4. Formation Requirements
5. Secondary Information
6. Management Meetings and plant visits
7. Other Meetings
8. Meeting with the Issuers’ CEO /CFO:
9. Internal Review Committee Meeting
10. Rating Committee Meeting
General capacity to work
CRAB offers the following Rating Services:
Entity Ratings
Financial Institution Ratings
Corporate Debt Ratings
Equity Ratings (Initial public Offerings and Right Offerings)
Structured Finance Ratings
Insurance Companies Rating/Claims Paying Ability Rating
Mutual Funds Schemes Rating
Corporate Governance & Stakeholder Value Addition Rating
Clientele Rating for Banks/Financial Institutions
Other service
Grading Service
The following grading methodologies will illustrate the scope:
1. Real Estate Developers Grading
2. Health C. Other Grading Services
3. Care Institutions Grading
Advisory & Consulting Service
Information Service
03. National Credit Ratings Limited (NCR)
National Credit Ratings Limited (NCR) is a full service rating company that offers a wide
range of services. Incorporated as a public company, NCR started its business with a paid up
capital of TK 10.00 million. The Securities and Exchange Commission granted the license to
NCR in June 2010 under the Credit Rating Companies Rules 1996.The Company is
recognized by the Bangladesh Bank as an External Credit Assessment Institution (ECAI).
Mission
To provide high quality, independent and reliable risk profile information on
industrial and commercial enterprises in the domestic market using analytical
competence, professionalism and integrity.
NCR rating Methodology
NCR gives opinion as to the ability of an entity to meet its financial obligations. The rating
process primarily concentrates on business and financial risks. The focus is to assess cash
generation capability and its adequacy to meet debt obligations on a timely basis. The analysis
attempts to determine the long-term fundamentals and likelihood of change in these, which
could affect the credit worthiness of the entity.
The analytical framework of their rating methodology is divided into two interdependent
segments. The first deals with the operational characteristics and the second with the financial
characteristics. Besides they make use of both the qualitative and quantitative analysis in
arriving at the rating opinion. Analysis typically involves at least three years of operating
history and financial data as well as forecasts of future performance. To achieve a clear
perspective on relative performance, a company’s performance is compared with that of others
in the same industry. In addition a sensitivity analysis is performed to assess a company’s
capacity to cope with changes in its operating environment.
(NCR) CEO
Managing Director and CEO Mr. Md. Momin Ullah Patwary, BP
General capacity to work
Range of Products and Services
Entity Rating
Bank Loan Rating
Financial Institution Rating
Insurance Company Rating
Asset Manager Rating
Instrument Rating
Sectoral Grading & Rating
04. Emerging Credit Rating Limited (ECRL)
Emerging Credit Rating Limited (ECRL) is a Rating Organization with the aim of providing
independent credit opinions and research in Bangladesh Credit Market, aligned with
Malaysian Rating Corporation Berhad (MARC), Malaysia. Their main clients includes all
Banks, Financial Institutes (FI), Insurance Companies, Companies coming under IPO and all
kinds of Debt instruments and a large number of Corporate borrowers of Banks and FIs.
Vision
Our existence and foundation is built on the significance we place in investors and depositors,
their protectionism, and our assurance to provide clarity and reliability in our rating
judgment, through globally accepted rating methodologies and processes.
Mission
To reach the premier position of a credible and acceptable rating business entity in
Bangladesh via the process of making sure that Emerging Credit Rating Ltd is recognized by
investors, issuers and bankers for its transparent and timely coverage and reliability, allowing
financial decision-makers to feel confident about their resolutions.
(ECRL) CEO
(Managing Director& CEO) Mr. Ahsan PARVEZ
General capacity to work
Service
Corporate Debt Rating
Bond Rating
Financial Institutions Rating
Structured Finance Rating
General Insurance Rating
Life Insurance Rating
Issuer Rating
Shariah Banking ( Islamic Financial Institutions ) Rating
05. ARGUS Credit Rating Services Ltd (ACRSL)
ARGUS Credit Rating Services Ltd (ACRSL) is the next-generation Credit Rating
Organization of Bangladesh. Founded as a joint-venture between global experts in credit &
equity research and local sponsors with strong capital markets track record, ACRSL received
its license from the SEC in 201
Vision
To become the pre-eminent Credit Rating Organization in Bangladesh through the
dint of their unwavering independence, uncompromising quality, and unmatched
innovation.
Mission
To earn a high reputation for integrity through the exercise of objectivity, fairness,
and independence.
To provide a comprehensive range of services aimed at improving the efficiency of
our credit markets.
To maintain the highest standards of quality in every rating, every product, and every
service we provide.
To open up new frontiers in the credit markets through innovation, cross-pollination
of ideas, and technology transfer from international partners.
To train the next-generation of local talent to global standards.
Rating Methodology
The methodologies have been designed after due consideration to the specific insights of each
sector with appropriate weightage to both qualitative and quantitative factors of each sector.
The qualitative and quantitative factors are converted to specific traits with appropriate
weightage for highest performance, lowest performance, industrial average etc. to arrive at a
meaningful rating of an organization. We have designed the specific rating methodology for
specific sectors.
General capacity to work
Product and Services
They provide a host of services, including Credit Rating, Credit Advisory, Project Feasibility,
Credit Research that together evaluate and quantify credit and business risks associated with
following clients and instruments:
Corporate & Entity:
Financial Instruments:
Bank Loan & Facility Rating:
Project Financing Rating:
SME Rating:
Credit Advisory service
Company profiling
Project Feasibility Study
06. WASO Credit Rating Company (BD) Limited
Vision:
Uphold the national image in line with global risk management practices through
unbiased,
Reliable and independent rating opinion for better financial management in the
corporate and financial sector of the country.
Mission:
To provide our clients with complete, accurate, detailed and transparent opinion in
order to enable them to make sound investment and lending decisions.
To promote data transparency, encourage corporate transparency and good corporate
governance.
To provide global risk analysis tools required to make sound lending and investment
decisions.
To create awareness on global risk management practices in credit risk management.
General capacity to work;
Product and service
issuer/Entity Ratings:
For Corporate, Banks and Financial Institutions
Issue Specific Rating
Long Term Ratings
Short Term Ratings
Bank Loan/Facility Ratings
Claim Paying Ability Rating
Other service
Due Diligence Service
Accreditation Service
7. Alpha Credit Rating Limited
Alpha Credit Rating Limited as incorporated on the 24th of February 2011. a result of the
initiative of a few distinguished and renowned professionals of Bangladesh and the with
support and organizational assistance from SATCOM IT Ltd., Axis Resources Ltd., Equity
Care Bangladesh Ltd., and TAN Equity and Investment Ltd.
Mission
Provide independent and reliable analysis and opinions on the creditworthiness of
Bangladeshi obligors.
Bring extensive international credit rating experience in order to contribute to the
fostering of a credit rating culture among Bangladeshi obligors, investors and other
market participants.
Alpha Credit Rating Limited chairman
Chairman Methodology A S A Muiz (Shujan),
Rating methodology
The rating methodology incorporates quantitative factors. The rating reflects the company’s
current financial strength as well as how the financial position may change in the future. In
this respect, extensive research on the out look of the sector in which the firm operates is also
an integral part of the rating methodology. Ratings are assigned by the Rating Committee.
The ratings are assigned on a national scale and corporations are evaluated in respect to the
financial strength of their peers in Bangladesh. Within this context, our analysis takes into
consideration the fundamentals of the Bangladesh economy and the key features of the sector
in which the company operates. The issuer’s evaluation will also take into account:
Recent economic developments,
The quality of economic and financial management,
The debt and characteristics of the sector,
Economic stability,
Political stability and effectiveness of the political system,
Long-term trends and economic outlook.
General capacity to work
Product and service
Corporate Entities Rating
Financial Institution's Rating
Insurance Company's Rating
Sub-National Entities Rating
Project Finance Rating
08. The Bangladesh rating organization limited
This is a very new credit rating organization. It registered 7th march in 2012. It is not started
its journey properly.
The Importance of Credit Rating Organization
Credit rating organization provides investors and debtors with important information
regarding the creditworthiness of an individual, corporation, agency or even a sovereign
government. The credit rating organizations help measure the quantitative and qualitative
risks of these entities and allow investors to make wiser decisions by benefiting from the
skills of professional risk assessment carried out by these organizations. The quantitative risk
analysis carried out by credit rating organizations include comparison of certain financial
ratios with chosen benchmarks and the qualitative analysis focuses on the management
character, legal, political and economic environment in a jurisdiction. The importances are:
Development of Financial Markets
Credit rating organizations help provide risk measures for various entities and make it easier
for financial market participants to assess and understand the credit risk of the parties
involved in the investing process. Individuals can get a credit score in order to be eligible for
easy access to credit cards and other loans. Institutions can borrow money easily from banks
without having to go through lengthy evaluations from each individual lender separately.
Also corporations and governments can issue debt in the form of corporate bonds and
treasuries to attract investors based on the credit ratings.
Credit Rating Organizations Help Regulate Financial Markets
The credit ratings provided by popular rating organizations have become a benchmark for
regulation of financial markets. Legal policies require certain institutions to hold investment
graded bonds. Bonds are classified to be investment graded based on their ratings by these
organizations, any corporate bond with a rating higher than BBB is considered to be
investment graded bond.
Estimation of Risk Premiums
The credit ratings provided by these organizations are used by various banks and financial
institutions in determining the risk premium they will charge on loans and corporate bonds. A
poor credit rating implies a higher risk premium with an increase in the interest rate charged
to corporations and individuals with a poor credit rating. Issuers with a good credit rating are
able to raise funds at a lower interest rate.
Enhanced Transparency in the Credit Markets
The credit rating organizations provide improved efficiency in the credit markets and allow
for more transparency in dealings. The ratings help monitor the credit soundness of various
borrowers through a set of well-defined rules.
Standardization of the Evaluation Process
Most credit organizations use their own methodology for determining credit ratings, but since
only a handful of popular credit rating providers exist, this adds a great deal of
standardization in the rating process. The credit ratings of different borrowers can be easily
compared using ratings provided by a credit rating company and the applications can be
easily sorted.
Conclusion
In conclusion we can say credit rating organization represents the credit rating agency's evaluation of
qualitative and quantitative information. This helps the investors, customers, employees and
business partners rely upon the data and objective analysis of credit rating organizations in
determining the overall strength and stability of a company.
Reference
http://www.academia.edu/1727002/Credit_Rating_of_Bangladeshi_Banks
http://www.acrslbd.com/?width=1366&height=602
http://alpharating.com.bd/
http://www.businessdictionary.com/definition/credit-rating-agency.html#ixzz2DUZIpIli
http://www.crab.com.bd/
http://www.crislbd.com/
http://www.ehow.com/about_6723240_importance-credit-rating-agencies.html
http://www.ncrbd.com/