Regulatory Framework and Role of Domestic Credit Rating Agencies in Bangladesh
Tsunoda, Jiro; Ahmed, Muzaffar; Islam, Mohammed Tajul | November 2013
Abstract
The Securities and Exchange Commission Bangladesh (SECB) promulgated the Credit
Rating Companies Rules, 1996 for investor protection in issuing debt securities and public
issue of shares. Two domestic credit rating agencies (DCRAs) were licensed by SECB
after 2002, which were later accorded status of external credit assessment institutions
(ECAIs) by Bangladesh Bank. Thereafter, SECB and Bangladesh Bank issued rules and
regulations towards mandatory ratings which led to the building of information frameworks
critical to the efficiency of financial markets. Investors could now optimize their risk–return
profiles, monitor their portfolios through regular surveillance and credit rating adjustments,
and have timely information for trading and risk management. Recently, DCRAs have come
to play a more crucial role since the capital adequacy of commercial banks has been tied to
rating assessment of bank investments. The use of credit rating is expected to lead to the
establishment of acceptable measures of credit risk evaluation so that commercial banks can
meet Basel II regulatory prescriptions. As Bangladesh Bank accords ECAI status to more
DCRAs, banking sector financing to corporate borrowers is receiving a boost. The number of
DCRAs operational in Bangladesh has risen from two to seven between 2010 and 2013.
Furthermore, Bangladesh Bank plans to introduce ratings for small and medium-sized
enterprises (SMEs) and a customized credit assessment framework for SMEs including a
separate rating scale and notation that sets SME ratings apart from the usual bank loan
ratings. Access to adequate financing is still a chronic problem for SMEs in the Asian region
and here, credit ratings could fill a critical gap in the credit information continuum, moving
away from collateral-based lending to risk-based lending.
Citation
Tsunoda, Jiro; Ahmed, Muzaffar; Islam, Mohammed Tajul. 2013. Regulatory Framework and Role of Domestic Credit Rating Agencies in Bangladesh. © Asian Development Bank. http://hdl.handle.net/11540/2293. License: CC BY 3.0 IGO.Keywords
Asian Development Bank
Development
Regional Economic Integration
Financial Sector Policies
Financial Risk Management
Bond Financing
Economic integration
Development Bank
Capital Market
Regional Plans
Regional Development Bank
Development finance
Development Banks
Local government bonds
Bonds
Catastrophe bonds
Bond funds
Bond market
Multilateral development banks
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