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Rating and enforcing

Article - December 16, 2011
The establishment of a credible credit rating agency has been essential to the country’s financial progress

DHAKAR’S MODERN SKYLINE MAY COME AS A SURPRISE TO WESTERN EYES

Credit Rating Information and Services Limited (CRISL) is the first credit rating company in Bangladesh. The company was incorporated with the Registrar of Joint Stock Companies in 1992 and Credit Rating Company rules 1996 as a recognised ECAI, and has been operating as the first rating company in the country since 1995. Initially, all credit risk assessments were done internally by SEC Bangladesh (Security Exchange Commission of Bangladesh), which acts as the regulatory body for external rating institutions. This scenario has been changing slowly as dependency on, and trust of, credit rating agencies grow stronger.

The genesis of the CRISL is linked with the Bangladeshi government’s efforts to organise the first ever Euromoney Conference in Bangladesh in 1994, where a large number of international investors and world investment forum members were invited, with a view to gaining some insight into the financial stability of the South Asian country. The participants concluded that the reason Bangladesh had not been receiving the desired level of investment was that the country did not have a rating agency, and the country had not been rated officially by any international rating body. In absence of the above, some international rating agencies, based on the limited financial information available at the time, gave Bangladesh a ‘C’ rating, which meant a highly speculative and risky country for investment.

In late 1994, Mr Muzaffar Ahmed FCMA, FCS, one of the leading financial economists in the country, took the position of CEO at CRISL, a position which other financial experts had considered carried too much responsibility, for too little reward. Dr Ahmed immediately visited several rating agencies in India to get a better understanding of those companies, their operational methods and their prospects. Upon returning to Bangladesh he discussed the project with a few select professionals and business people, making detailed presentations, ultimately convincing them to join with him, and invest in CRISL.

Since its beginnings CRISL has played a major role in reversing the financial mistakes made by the newly independent Bangladeshi government of the 1970’s, particularly non-performing loans. Mr Ahmed recently said: “The Central Bank instructed all banks to be rated every year in the financial sector, which means all the banks have to submit a credit rating to the Central Bank every year. This has a tremendous impact on the economy, since banks are required to report on their compliance status. As a result, in the last 10 years the number of non-performing loans (NPL) of our banks has substantially decreased.”

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