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. 01. 02. 03 04 05. 06. 07. 08. Name of the Company Date of Issuance of Registration Certificate Credit Rating Information 21/08/02 and Services Ltd (CRISL) Credit Rating 24/02/04 Organization of Bangladesh Ltd (CRAB) National Credit Ratings 22/06/2010 Ltd Emerging Credit Rating 22/06/2010 Ltd ARGUS Credit Rating 21/07/2011 Services Ltd. WASO Credit Rating 15/02/2012 Company (BD) Limited Alpha Credit Rating 20/02/2012 Limited The Bangladesh Rating Organization Limited 07/03/2012 Address Nakshi Homes (4th and 5th floor), 6/1A, Segunbagicha, Dhaka-1000 Chamber Building (6th Floor), 122-124 Motijheel C/A, Dhaka-1000 3 Bijoy Nagor, 3rd floor, Dhaka-1000 SHAMS Rangs, House #104, Park Road, Flat# A1, A2, Baridhara, Dhaka-1212 7 Suhrawardy Avenue, Baridhara, Dhaka-1212 Haque Chamber (Level-5), 89/2 West Panthopath, Dhaka-1205 Navana Rahim Ardent (1st floor) 39 Kakrail, Dhaka-1000 47 Karwan Bazar, Latif Tower (12th floor), Dhaka1215

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, ZeroCoupon 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 companys performance is compared with that of others in the same industry. In addition a sensitivity analysis is performed to assess a companys 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 companys 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 issuers 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/