Credit risk assessment manuals launched for inter-bank lending

FE Team | Published: July 10, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

Siddique Islam
The Bangladesh Bank (BB) has introduced separate credit risk-grading manuals only for assessing the risks involved in inter-bank and non-banking financial institutions (NBFIs) lending.
The central bank took the move to minimise the financial risks of the lending commercial banks and NBFIs for sanctioning such loans through improving the credit risk-grading system, official sources said.
Besides, the existing credit risk-grading manual will remain in force for financing all commercial clients other than the commercial banks and NBFIs.
The central bank issued a circular in this connection Monday and asked the chief executives of all scheduled banks to comply with such manuals for assessing credit risks of banks and NBFIs.
"A bank or an NBFI while lending to another bank or an NBFI will have to assess the credit risks involving the borrower on the basis of such manual to help reduce the financial risks," a BB senior official told the FE Monday.
He also said the two separate manuals - credit risk-grading manual-bank and credit risk grading manual-NBFIs - have already been sent to the commercial banks to calculate such risks.
The central bank asked the banks to adopt the credit risk grading system outlined in the two manuals for assessing credit risk in case of taking exposure on another bank or NBFI.
The banks are directed to implement such grading system by October, 2007 and submit a compliance report to the banking regulations and policy department (BRPD) of the BB by November 15 next to the effect that the credit risk grading has been put in the place.
On December 11, 2005, the central bank asked the banks to implement credit risk grading manual for all exposures (irrespective of amount) other than those covered under consumer and small enterprises financing prudential guidelines and also under the short-term agriculture and micro-credit.
"The above credit risk grading manual was applicable in case of lending to all commercial clients including banks and NBFIs. But the financing to banks and NBFIs in line with the said credit risk grading manual was found difficult and complex," the central bank said in its circular.
The nature of business as well as leverage level of banks and NBFIs are different from that of other borrowing clients for which a separate credit risk grading manual is needed, the circular added.
Basel-II compliance also calls for risk rating of the obligor, which includes all clients like commercial, banking and non-banking financial institution.
The bankers, however, welcomed the BB's initiative, saying that the manuals will help to reduce the financial risks in the banking sector.
"The financial risk will be reduced and financial institutions will enjoy healthier position through implementation of such manuals," Managing Director and Chief Executive Officer of the Agrani Bank Syed Abu Naser Bukhtear Ahmed told the FE.