It is with modest honor and respect that I submit my internship report on “Credit Rating Analysis: A Case on Credit Rating Information and Services Limited”. Certified that this project report entitled “Credit Rating Analysis: A Case on Credit Rating Information and Services Limited” is the bona fide work of Md.
Introduction
Background of the Study
Objectives of the Report
Methodology of the Study
Limitations of the study
Practical Experience on Internship
What is Credit Rating?
Purposes of Credit Rating
Classification of Credit Rating
Importance of Credit Rating
The credit rating provides market participants with timely access to unbiased, objective, independent, professional, expert opinion on the quality of securities in a user-friendly manner that they can rely on for investment decisions. The valuation opinion would make it easier for investors to decide on their portfolios by selecting investment options in the market based on their profiles and preferences. The credit rating would make a significant contribution to the development of investor confidence in the stock market and increase the quality and completeness of the securities market, by providing credible information to guide institutional and individual investors.
Credit rating helps the regulators promote and improve the accuracy of the financial markets. Helps in the qualitative development of the money and capital markets and increasing the transparency of financial information and corporate sector governance in Bangladesh.
History of Credit Rating
Bank as creditor will become more involved in the business of the corporation and become an insider. The impact of rating agencies has been to level the playing field and improve the efficiency of capital markets. The role of credit ratings and rating agencies will continue to solve other asymmetric information problems -- those between investors and asset managers.
The use of credit ratings helps manage conflicts of interest between the asset managers and their clients whose money the managers invest. Asset managers may be tempted to invest in higher risk securities even though investors would not knowingly approve such investments. The use of ratings in the investment policy can reduce the risk4 of the investment manager's investments at low monitoring costs and thus benefit investors.
The three most prominent rating agencies that rate sovereign countries are Standard & Poor's, Moody's and Fitch Ratings. On average, the 10 member states of the Basel Committee on Banking Supervision (BCBS) recognize six agencies.6 In the US, the Securities and Exchange Commission (SEC) currently recognizes only four.
Credit Rating Industry in Bangladesh
Many of these agencies are smaller and focus on a niche market based on sector or geography. These four include the big three agencies plus Dominion Bond Ratings, a Canadian firm, which was granted Nationally Recognized Statistical Rating Organization (NRSRO) status in February 2003.7 In 1999, the Basel Committee on Banking Supervision (BCBS ) sent a proposal to its members on criteria for the recognition of agencies. Different members responded with different measures, some of which included the BCBS proposals, and some of which included additional measures based on market usage, credibility and adequacy of staffing.
The credit information industry collects information and provides analyzed data to financial institutions to assist in the allocation of funds to specific users. This industry brings together data management, the capacity to discover facts and analytical ability to assess the probability of payment, whether it is a borrower, an issuer of debt instruments for sale to the public, the soundness of equity issues or the probability of an insurance company making a payment. The credit rating estimates the likelihood of default by the person or organization that took the saver's funds.
Credit information facilitates the operation of financial markets by creating specialists in the assessment of risk, lowering the cost of data collection and providing information for all forms of financial intermediation.
Overview of Credit Rating Information & Services Limited (CRISL)
Mission and Vission
Historical Background of CRISL
CRISL Credit Rating Services
Other Rating Services of CRISL
CRISL Rating Process
After receiving comments from the IRC, the assessment team forwards a copy of the report to the client for verification, comment and factual confirmation against complete supporting data/information. The evaluation team then forwards the report to the Internal Review Committee for final review. The Committee reviews the Report, considers the client's comment and proposes an initial assessment and the report is finally placed before the Assessment Committee.
If the customer is not satisfied with the rating, he can appeal for rating revision within one week of rating declaration, with the reasons why the rating was not accepted. Rating Committee considers the appeal if it has sufficiently valid grounds that were overlooked earlier and convenes a meeting with at least one new member in the Committee; The Grading Committee assigns the final grade. CRISL rating team consists of minimum two professionals who have relevant knowledge and experience to ensure quality rating.
When forming a rating team, CRISL collects statements from members that they are eligible to join the rating team under the guidance of CRISL's Code of Ethics. Has had an employment or other significant business relationship with the rated entity in the previous one year period that may create or be perceived as causing a conflict of interest;
Role of CRISL in Bank Loan Rating
Owns securities or derivatives of any entity related to a rated entity whose ownership may create or be perceived as a conflict of interest; Has one or more immediate family members who are dependents and currently work for the rated entity; or. Has or has had any other relationship with the rated entity or any related entity that may create or be perceived as causing a conflict of interest.
The IRC consists of mid-level professionals who have knowledge and experience in the sector, involved with a minimum of 400 to 500 assessment tasks. IRC members must be aware of assessment requirements, relevant methodology, compliance requirements and must be acceptable under the CRISL Code of Ethical Conduct and free from any conflict of interest. The Evaluation Committee consists of senior CRISL professionals and at least one person with sector knowledge.
The members should be aware of CRISL rating system, international rating norms with wide knowledge about the economy and its sectors. The RC is independent and the Board of CRISL has no role / influence on the RC.
Mapping of CRISL Rating with BB rating Grade (For Corporate)
Implication of CRISL Loan Rating
Scope and Limitations of CRISL Ratings
Performance of CRISL at a Glance
CRISL Sector Wise Rating Distribution
Progress of CRISL Rating
Credit Rating Methodology of CRISL
Methodology for Bank & Financial Institution
Qualitative factor analysis
CRISL attaches great importance to the quality of management, experience and educational background of the senior, middle and junior management, management philosophy, goals and strategies, management appetite for risk taking. While reviewing the earnings and its outlook, CRISL reviews the level of earnings, its diversity, interest rate management, basic earnings before provisions and tax, sustainability of earnings. CRISL gives due consideration to these factors in the rating process and also assesses the status of the banks in managing these risk exposures and determines the capital requirement, maintenance of capital level in any form, growth in internal capital generation to achieve the target, maintenance of regulatory capital and the buffer against severe shocks .
Corporate governance in the financial sector is taken seriously by the regulators of the country in light of the absence of many common fundamentals of governance norms in the sector. The funding base and branch network play an important role in assessing the competitive position of the Bank/FI. CRISL reviews the IT infrastructure, its application in business operations, especially in Risk Management, Database Management, Credit Risk Analysis, Data Transfer Mechanism, Data Disaster Management System, etc. to determine the strength of the system.
The risk management function plays a key role in assessing the bank's overall risk. Accordingly, CRISL reviews the structure and activities of the Risk Management Department and its review process.
Quantitative factor analysis
CRISL's analysis covers various aspects of risk management in the areas of credit risk, operational risk and market risk. The financial disclosure, which reflects the business and its result, plays a very important role in the assessment. Financial disclosure as per IAS/BAS/IFRS/BFRS requirements as compared to Bangladesh Bank guidelines is given due weightage in CRISL valuation.
International Convergence of Capital Measurement and Capital Standards popularly known as BASEL-II has already been implemented by Bangladesh Bank. Under BASEL-II, banks are required to comply with a new set of risk management system covering its credit risk, market risk, operational risk and disclosure management. BASEL–II emphasized on adequate disclosure of banks' risk management system, which is also considered by CRISL in the assessment process.
CRISL’S LONG TERM - BANKS AND FINANCIAL INSTITUTIONS
SHORT TERM - BANKS AND FINANCIAL INSTITUTIONS
Rating Methodology for Corporate/ Manufacturing
Rating Methodology for SME
Medium Industry/Enterprises
Small Industry/Enterprises
Rating Scale of SME
CRISL rating scales for medium-sized enterprises CRISL Me 1 Highest investment grade. Highest security) Medium-sized enterprises rated in this category are judged to be of the best quality, offer the highest security and have the highest credit quality. Changes in economic circumstances are unlikely to have any serious impact on this category of entities.
High Investment grade
Impact of Credit Rating of CRISL on Bangladesh Economy
Credit rating has given Bangladesh much-needed access to foreign financial markets and made it a lucrative destination for foreign investors. The private sector will now benefit by getting foreign loans and this will reduce import and export costs. Importers will be benefited as letter of credit confirmation and warranty costs will be lower as the whole world now knows the economic condition of the country.
The cost of country risk for unrated Bangladesh is around two to three percent and the rate is expected to decrease by 0.5 to 1.0 percentage points. The rating also enables the government to raise low-cost capital in overseas financial markets and further diversify its funding sources. Many international agencies release various reports about Bangladesh from time to time and this will eliminate any confusion about the country.
In short, we can say that Bangladesh is now on the investor radar simply because of its fundamental appeal. The ratings discussed above prove the positive sign of Bangladesh as it has positive demographics, rising consumption and stable growth.
Findings
Recommendations
They should plan to create a database for each industry through which they can perform industry and market trend analysis.
Conclusion
