Credit rating method of credit rating agency of Bangladesh (CRAB)

Abstract

Credit stands for being monetary liable and rating stands for symbolic result of evaluation. But the combination of these two words defines more than their meaning; it is the process of evaluation to rate to someone’s creditworthiness. This concept got popularity after the financial crisis started over the globe. Usually banks and financial institutions are popular in case of lending or giving credit money which are deposited to them by depositors. And when a depositor fails to repay back both the bank/FI and creditor suffers. Continuity of these sufferings turns them to bankrupt. Eventually a country becomes bankrupt as the most influential sector in economics (banking sector) of the country defaults. From this point of view, some companies named Moody’s, Flitch and Standard & Poor had developed and remained practicing the concept of credit rating from more than 200 years back. Increase in occurrence of financial recession, the practice of credit rating was spreading over the world as countries’ were becoming financially insolvent. Credit Rating is two types; International credit rating (rating of a country) and national credit rating (rating of an institution/person). Many more organizations and associations like ICRA, ACRAA also emerged with the intention to regulate, control, formulate rules and to integrate this credit rating practice. At first its application was mandatory on Bank, FIs and NBFIs. Bit by bit, it turned out to be applicable on corporate business and SMEs too. Country’s credit rating is also compulsory for public finance and foreign aid sanction. Eventually, credit rating practice started in Bangladesh in 2002 with holding the hand of CRISL. Bangladesh Bank has also administrated BASEL accord and amended the credit rating act 1996. CRAB was the first mover of the industry which incorporated at 2004. Chain of command from top to bottom approach is maintained in Credit Rating process of CRAB. At first CRAB does an initial meeting with its client and takes information. Then a detail analysis is done on clients’ business model, financial condition, industry risk, operation risk, management, background, and credit facility. After that a group of credit rate debates and decides an appropriate rating maintain all the codes of conduct for the credit worthiness of the company. An award letter and credit rating report have to be submitted mentioning the rating to its client. In this report I’ve discussed about credit rating, credit rating in Bangladesh, requirements of rating in Bangladesh, about CRAB, details discussion on the credit rating process at CRAB, brief discussion on the financial ratios, grading. In my internship report I have done an analysis on ABC Ltd. And it was rated A3 which defines it has strong capacity to meet financial commitments. Over all, there are some recommendations on CRAB and its rating process. It can be said that importance of credit rating is increasing day by day. Proper rating can save a country to get bankrupt.