WHAT CREDIT RATING ACTUALLY MEANS

Ratings are the opinion of rating agencies on the creditworthiness of issuers or issues
in terms of their/ its ability and willingness of discharging its obligations in timely
manner. Ratings are issued on the basis of information supplied to CRISL by the
issuer or its officials and also on the basis of information CRISL believes to be
reliable.

Rating does not constitute any advice for investment nor is it a recommendation to
purchase, hold or sell a particular security. CRISL ratings opinions are not construed
as comment on the suitability of investment for a particular investor. CRISL ratings
are not investment recommendations and do not work as investment advisory
services.

CRISL is not obligated to perform any due diligence on independent verification of

any information submitted to it or obtained in the process of rating or surveillance.
CRISL do not perform an audit and also do not undertake any responsibility of the
verification of the audited statements. The assignment of rating to an issuer or an
issue by CRISL should not be viewed as guarantee of the accuracy, completeness
and timeliness.

CRISL expresses its ratings in terms of some alphabets such as AAA, AA, B, C etc
which is in short indicates the investment grade, speculative grade, risk grade or
default grade etc.

CRISL investment grades ratings cover AAA down to BBB, while Speculative
grades covers BB down to B. Its Risky Grades fall under the range from CCC to C
while D is considered as the Default Grade.

CRISL offers Long Term and Short Term ratings to indicate the time horizon of
ratings. Its long term Rating covers a period ofperiod of one year while its short
term rating covers a period uptoup to six months.

CRISL ratings are in local currency and therefore, it does not take into consideration
the sovereign risks and foreign currency risk of Bangladesh Government. CRISL,
being a domestic rating agency of Bangladesh considers the government of
Bangladesh as the highest pay master and all government guaranteed securities/
guarantees areguarantees are considered as AAA.

WHAT CRISL MEANS BY DEFAULT RATING

CRISL adopted the international definition of default as being adopted by global
rating agencies. Under the above definition, Default is:
A) A missed installment (Principal and or Interest) which has not been
discharged / paid as per schedule or within the grace period allowed by the
regulators/ creditors.
B) Failure to honour the corporate guarantee obligations as per contract or
within the allowed grace period;
C) The legal insolvency or bankruptcy of the issuer/ entity
 D) A distress exchange in which the bondholders/ creditors are offered a
substitute instrument with inferior terms and conditions
E) Restructuring of a financial obligation substantially disadvantageous to the
creditors;

WHO ARE THE PRIMARY USERS OF RATING SERVICES

The rating service can be used by the following entities:

 Banks
 Financial Institutions such as leasing and house financing companies
 Governments and Regulators
 Financial Intermediaries/Merchant Banks/ Issue Managers
 Loan syndicators
 Business Houses
 Corporate Entities
 Investors

WHAT ARE THE BENEFITS OF RATING

To the Rating Entities

 Branding your organization with international standards

 Good rating will assist to source finance at cheaper rate while bad
rating will assist an organization to take right step for improvement
 Know your business through the eye of independent professionals of
high standard
 Increase cost effectiveness of an organization

To the Regulators

 To review the status of compliance

 Independent evaluation of funded funds in projects.
 Easy monitoring of the companies/Entities
 Economic trend analysis.

To Financial Institutions:

 Independent review of the projects seeking fund.

 Project construction monitoring and compliance.
 As a bench mark to avoid unnecessary political and other
pressure on project financing.
 To know its own strength and weakness
 Review of Capital Adequacy, liquidity, asset quality, cost
effectiveness, profitability, Peer comparison, management
effectiveness.

To the general investors

 To know the fundamentals of an issuer or issue before deciding on investment
 To decide on portfolio management;
 To set the overall risk exposure
WHO RATES THE RATERS

Rating Agencies are playing very important role in the investment gamut of a
country. The report and analysis of the rating agencies are believed to be reliable
and therefore trusted by all. Now the million dollar question whether the rating
agencies are doing their job properly or not - who rates the raters? The above
question has been suitably answered by Bank for International Settlement (BIS).
The BIS opined that the quality of rating of a rating agency may best be judged by
its default and transition statistics over a period of time horizon. That means, the
quality of services of a rating agency is reflected by two statistical analysis of the
performances:

Default statistics:
Default statistics means how many ratings in each rating categories has defaulted
over a period of time. For example how many AAA ratings have defaulted over the
last ten years and at what point of time compared to the number of AAA ratings.
The above defaults reflectsdefault reflects the quality of rating. For example a
rating agency assigned AA rating (high investment grade )grade) to an issue. Over
a period of only, say, two years it has defaulted, indicating poor quality of rating.

Transition Statistics:
Transition statistics means how many ratings of a rating category moved upward or
downward over a period of time. For example, how many A ratings have moved
upward to AA or moved down to BBB or BB and at what point of time. Moving down
a AA rated issue to BBB over, say, two years of time indicate poor quality of rating
and so and s forth.

Understanding the accuracy of above tests, the BIS has asked the regulators to
check the Default and Transition statistics of a rating agency before it is recognized
as External Credit Assessment Institute (ECAI) to rate the banking counter parties
for capital adequacy of banks.