An Assessment of Credit Rating Process of Credit Rating Agency of Bangladesh Limited (CRAB)

Abstract

The word credit popularly using in monetary purpose and rating is assessment of capability to pay back its debt. Therefore, monetarily credit rating is assessment or evaluation of credit risk of a debtor and predicting the ability of pay back debts or financial credit worthiness of a firm. This idea became popular having the financial crisis started over globally. Banks and financial institutes are the main user of credit rating system for selecting clients for lending purpose. It is a vital instrument of evaluating borrower’s financial health. If the financial sectors of a country become weak due to classification of loan, entire economy will be fallen into risk. In order to save financial sector from this crisis some companies namely Moody’s, Flitch and Standard & Poor had settled this notion of credit rating from more than 200 years back. There are two types in credit rating such as International credit rating and national credit rating (rating of an institution/person).The practice of credit rating in Bangladesh started in 2002 with holding the hand of CRISL. Bangladesh Bank has incorporated the credit Rating Act in 1996. CRAB came into operation in 2004 as an excellent performer in the industry. Chain of command from top to bottom approach is followed in Credit Rating process of CRAB. At first, CRAB organizes a primary meeting with its client for gathering information. Then a detail analytical works has done on obtained information such as client’s business model, financial condition, industry risk, operation risk, management background, credit facility, utilization of loan portfolio. After that a group of credit rating experts analyze the data and grade the risk withhold to the company and marking credit rating maintain all the codes of conduct for the credit worthiness of the company. This analytical result is placed to the trustee board for detailed discussion to get to approval. Then an award letter and credit rating report is submitted mentioning the rating to its client. In this report I have discussed about the movement of fund, loan position, repayment habit, nature of loan, assets available against this liabilities. For my internship report I used financial information of RAHIM TEXTILE MILLS Ltd financial information which a listed company of Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE). The company got A3 rating which expresses that has healthy financial position to meet loan obligation.

Over all, there are some commendations on CRAB and its rating process. Its importance is increasing day to day. Right rating can save the country from financial crisis.