Banks to hire credit raters
Saturday, 27 September 2008

Risk assessment

Can choose from list of ECAIs

Desk Report

Banks now will have to have their credit risks assessed by External Credit Assessment Institutes (ECAI), the Bangladesh Bank has said.

The banks will choose from a list of ECAIs provided by the central bank, it said in a circular on Thursday.
 
The central bank has issued guidelines for recognition of eligible ECAIs to assess credit risks in line with the Basel-II framework.
 
The circular sent to chief executives of banks advised them to take proper precautions before issuing loans to avert risks.
 
"Banks will have to appoint ECAI to assess credit risks from the list of organisations provided by the Bangladesh Bank," reads the circular issued by the central bank's banking rule and policy wing.
 
According to the new guidelines, capital adequacy risk would be determined on the basis of the ECAI rating report on counter-party of the bank.
 
Bangladesh bank has also asked banks to practice the same guideline for government organisations.
 
Currently, risks against loans to government organisations are accounted between 0 and 20 percent while for private organisations it is 100 percent.
 
"Private organisations have sound credit performance while government entities have a bad credit history.
 
"Bangladesh bank feels credit assessment prior to issuing loans will lead to sound financial state for banks [while] clients will be careful about their loans,", a central bank official, who would remain unnamed as he was not authorised to speak to the media, told bdnews24.com.
 
Bangladesh Bank will invite applications from interested credit rating agencies, both local and foreign, added the official.
 
Currently, two local credit rating agencies – Credit Rating Information and Services Limited (CRISL) and Credit Rating Agency of Bangladesh (CRAB) – operate in Bangladesh.

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