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/