Credit rating for large private, public entities likely to be made mandatory
Tuesday, 20 April 2010
Nazmul Ahsan
Nearly 20000 local business firms, companies and public sector entities are required to be rated by credit rating agencies to prove their credit worthiness and meet the financial compliance issues, said Bangladesh Bank (BB) in a report.
The central bank report, styled, 'Concept Paper on Credit Rating Agency,' has recently been submitted to the Ministry of Finance (MoF) as the ministry had earlier asked the central bank to draft credit rating regulations for major investors other than banks and financial institutions.
Besides, the MoF asked the Securities and Exchange Commission (SEC) to do the similar job as well. The SEC, however, is yet to submit their report on the issue, sources said.
The BB in its report said a total 10653 medium enterprises, 8955 large companies, 310 public sector entities and 33 subsidiary companies of banks require rating by credit rating agencies. The activities of these business establishments, one way or other, are dependent on bank loans, a top BB official said.
The kinds of establishments are-private limited companies, proprietorship firms, partnership firms, corporate borrowers and public sector entities, the BB report added.
The number of business firms and their categories, as suggested by BB for credit rating, have recently been identified by 'Basel-2 Implementation Cell of Banking Regulation and Policy Department', the report mentioned.
Government has planned to introduce credit ratings of major business firms and companies to determine their financial strength, profitability and 'compliance' issues, a top official in the MoF said.
Presently, listed companies are rated by rating agencies, as the practice is mandatory under the securities law.
But many other listed and family-owned private firms don't bother to undergo rating, fearing that the process might expose their weaknesses and holes in their books of account and drive away willing lenders.
"The move has been taken to examine financial accountability of private companies, increase their efficiency and establish corporate culture here. It will also help us to know which are the good companies,' a BB official said.
The companies to be ranked 'below average' might find it difficult to avail loans from local banks - a step that that may help cut non-performing loans.
Officials in the ministry said rating agencies to be assigned to conduct the job would look into capital adequacy, long and short term borrowings, efficiency, compliance, liquidity and profitability of a company.
Credit rating is mandatory for companies listed on the world's major stock exchanges. A good credit rating helps companies to avail loans on easy terms and boost its stock prices.
Only two credit rating agencies now operating in the country are not enough to conduct rating of major companies and firms, a BB official said.
"We have repeatedly asking the SEC to appoint more Credit Rating Agencies in the country,' the BB official said.
The ministry officials said a regulation on credit rating for private investors and companies would be drafted after going through the reports of BB and the one to be available from SEC.
Nearly 20000 local business firms, companies and public sector entities are required to be rated by credit rating agencies to prove their credit worthiness and meet the financial compliance issues, said Bangladesh Bank (BB) in a report.
The central bank report, styled, 'Concept Paper on Credit Rating Agency,' has recently been submitted to the Ministry of Finance (MoF) as the ministry had earlier asked the central bank to draft credit rating regulations for major investors other than banks and financial institutions.
Besides, the MoF asked the Securities and Exchange Commission (SEC) to do the similar job as well. The SEC, however, is yet to submit their report on the issue, sources said.
The BB in its report said a total 10653 medium enterprises, 8955 large companies, 310 public sector entities and 33 subsidiary companies of banks require rating by credit rating agencies. The activities of these business establishments, one way or other, are dependent on bank loans, a top BB official said.
The kinds of establishments are-private limited companies, proprietorship firms, partnership firms, corporate borrowers and public sector entities, the BB report added.
The number of business firms and their categories, as suggested by BB for credit rating, have recently been identified by 'Basel-2 Implementation Cell of Banking Regulation and Policy Department', the report mentioned.
Government has planned to introduce credit ratings of major business firms and companies to determine their financial strength, profitability and 'compliance' issues, a top official in the MoF said.
Presently, listed companies are rated by rating agencies, as the practice is mandatory under the securities law.
But many other listed and family-owned private firms don't bother to undergo rating, fearing that the process might expose their weaknesses and holes in their books of account and drive away willing lenders.
"The move has been taken to examine financial accountability of private companies, increase their efficiency and establish corporate culture here. It will also help us to know which are the good companies,' a BB official said.
The companies to be ranked 'below average' might find it difficult to avail loans from local banks - a step that that may help cut non-performing loans.
Officials in the ministry said rating agencies to be assigned to conduct the job would look into capital adequacy, long and short term borrowings, efficiency, compliance, liquidity and profitability of a company.
Credit rating is mandatory for companies listed on the world's major stock exchanges. A good credit rating helps companies to avail loans on easy terms and boost its stock prices.
Only two credit rating agencies now operating in the country are not enough to conduct rating of major companies and firms, a BB official said.
"We have repeatedly asking the SEC to appoint more Credit Rating Agencies in the country,' the BB official said.
The ministry officials said a regulation on credit rating for private investors and companies would be drafted after going through the reports of BB and the one to be available from SEC.