Definition of Credit

Credit is the provision of resources by one party to another party where that second party does not reimburse the first party immediately (thereby generating a debt), but instead arranges either to repay or return those resources (or other materials of equal value) at a later date. The resources provided may be financial (e.g. granting a loan), or they may consist of goods or services (e.g. consumer credit). Credit encompasses any form of deferred payment.[1] Credit is extended by a creditor, also known as a lender, to a debtor, also known as a borrower. Credit does not necessarily require money. The credit concept can be applied in barter economies as well, based on the direct exchange of goods and services (Ingham 2004 p.12-19). However, in modern societies credit is usually denominated by a unit of account. Unlike money, credit itself cannot act as a unit of account. Movements of financial capital are normally dependent on either credit or equity transfers. Credit is in turn dependent on the reputation or creditworthiness of the entity which takes responsibility for the funds. Credit is also traded in financial markets. The purest form is the credit default swap market, which is essentially a traded market in credit insurance. A credit default swap represents the price at which two parties exchange this risk – the protection "seller" takes the risk of default of the credit in return for a payment, commonly denoted in basis points (one basis point is 1/100 of a percent) of the notional amount to be referenced, while the protection "buyer" pays this premium and in the case of default of the underlying (a loan, bond or other receivable), delivers this receivable to the protection seller and receives from the seller the par amount (that is, is made whole).

Credit history
Credit history or credit report is, in many countries, a record of an individual's or company's past borrowing and repaying, including information about late payments and bankruptcy. The term "credit reputation" can either be used synonymous to credit history or to credit score. In the U.S., when a customer fills out an application for credit from a bank, store or credit card company, their information is forwarded to a credit bureau. The credit bureau matches the name, address and other identifying information on the credit applicant with information retained by the bureau in its files.That's why it's very important for creditors, lenders and others to provide accurate data to credit bureaus. [1] This information is used by lenders such as credit card companies to determine an individual's credit worthiness; that is, determining an individual's willingness to repay a debt. The willingness to repay a debt is indicated by how timely past payments have been made to other lenders. Lenders like to see consumer debt obligations paid on a monthly basis.

There has been much discussion over the accuracy of the data in consumer reports. this report has become even more important since it is usually the sole element used to choose the annual percentage rate (APR). While most people are familiar with consumer credit reports many are unaware that a similar reporting system exists to assess risk in extending loans to businesses. headquartered. the credit bureau has 30 days to verify the data. Commercial credit report Commercial credit reporting is the maintenance and reporting of credit histories and risks for commercial companies. With the adoption of risk-based pricing on almost all lending in the financial services industry. established in 1842) with thousands of employees and offices and correspondents around the world. Government departments are also large users of commercial credit for regulating businesses and in collecting taxes. They can be large public corporations like U. However. if for no other reason then to allow foreign exporters to asses the risk in shipping goods to a wholesaler in that country. insuring businesses. Over 70 percent of these consumer disputes are resolved within 14 days and then the consumer is notified of the resolution.[1] A recent development in commercial credit reporting is Cortera – which combines data reporting comparable to Dun & Bradstreet . purchasing businesses. [2] [3] The credit bureaus point to their own study of 52 million credit reports to highlight that the data in reports is very accurate.[4] If a consumer disputes some information in a credit report.[5] The other factor in determining whether a lender will provide a consumer credit or a loan is dependent on income. However. (traded on the New York Stock Exchange. and on what terms.A. The Consumer Data Industry Association testified before Congress that less than two percent of those reports that resulted in a consumer dispute had data deleted because it was in error. Every country in the world has commercial (or mercantile) credit reporting agencies. all other things being equal. but which also runs an online community in which businesses put up online ratings on if/how/when they get paid by . The higher the income. lenders make credit granting decisions based on both ability to repay a debt (income) and willingness (the credit report) as indicated in the past payment history. the more credit the consumer can access. Dun & Bradstreet Inc. investing in businesses and most of all in shipping goods to business on credit terms.S.[4] The Federal Trade Commission states that one large credit bureau notes 95 percent of those who dispute an item seem satisfied with the outcome. the only scientifically researched studies that include sample sizes large enough to be valid have concluded that by and large the data in credit reports is very accurate. underwriting insurance risk. grace period and other contractual obligations of the credit card or loan. These factors help lenders determine whether to extend credit.

Public record information such as. Electronic communication and computers changed the gathering of commercial risk information. Retailers hope that they will have sold the goods they bought at a profit before they are required to pay for these goods that they bought on credit. Retailers who can not get credit from suppliers are at a serious competitive disadvantage if they are required to pay for their inventories in cash on delivery. Few businesses survive five years in the same form that they were first founded. lease registrations and judgments are also gathered and added to the files on a particular business. Suppliers are not required to provide credit to customers. etc. bankruptcy filings. Collection agencies supply the credit reporting agencies with information on commercial collection claims they receive which are matched to the trade payment experiences. so they do take complaints seriously.[2]They can also be small one man operations serving a limited number of local and foreign clients in a small country. Companies unable to come up with sufficient cash to pay suppliers are quickly identified. unlike consumers most businesses are oblivious to the risk reports being compiled on them. the only way to gather risk information on a business was to visit the business owner at their place of business. As this flood of information accumulates over many years trends are identified and it becomes like a pulse tracking cash flow within a business. However. All businesses are in constant competition with other businesses for clients and markets. Strict laws governing consumer credit reporting agencies rarely include commercial credit reporting agencies. what was sold. They would then contact these suppliers and banks for reference information. They may never be aware of why they were unable to obtain credit from a supplier. Any complaints about the accuracy or incompleteness of information in a commercial credit report can potentially do harm to the agencies reputation. legal suits. to fulfill a request for a commercial credit report. Since only about 20% of businesses subscribe to . what banks they dealt with and detailed questions about number of employees. The granting of credit by businesses is very much a market driven. Credit reports can now be compiled in seconds without human intervention and without a business owners knowledge. Computerized monitoring systems tell suppliers when to restrict credit to unhealthy businesses. Before telephones and the internet. detailed reports can with mathematical equations be reduced down to two digit scores that now allow for automated credit approvals and rejections. Suppliers are now requested to supply frequent aged trial balance down loads on all their accounts receivable to commercial credit reporting agencies. It took days. Credit reporters would ask the owner for the names of the companies that supplied them on credit terms. even weeks. These trade payment experiences are linked together to give a profile of how a business is paying numerous suppliers. These very comprehensive. Commercial credit is more volatile than consumer credit.their own customers and suppliers (ratings visible to other community members.

goods or services provided to an individual in lieu of payment. two local and two foreign over a period of 1999 to 2003. personal loans (installment loans). store cards. Some costs are mandatory. Given the size and nature of the mortgage market. Optional charges are not included in the APR calculation. The cost of credit is the additional amount. Consumer Credit Scheme in Banking Sector of Bangladesh: A Comparative Analysis between Local and Foreign Commercial Banks The study is about the “Consumer credit scheme in banking sector of Bangladesh: a comparative analysis between local and foreign Commercial banks” on four private banks. that the borrower has to pay. many observers classify mortgage lending as a separate category of personal borrowing. arrangement fees and any other charges. Trade credit The word credit is used in commercial trade in the term "trade credit" to refer to the approval for delayed payments for purchased goods. may be optional. It includes interest. The goal of the APR calculation is to promote ‘truth in lending’.such as the one adopted by the Federal Reserve in the US. Both the primary and . The borrower chooses whether or not they are included as part of the agreement.commercial credit reports it most likely a business that was turned down by one supplier will be able to find an alternative source of supply. then insurance costs will not be included in the APR calculation (Finlay 2009). but under many legislative regimes lenders are required to quote all mandatory charges in the form of an annual percentage rate (APR). So if there is a tick box on an application form asking if the consumer would like to take out payment insurance. Consumer credit Consumer debt can be defined as ‘money. Other costs. Interest and other charges are presented in a variety of different ways. motor (auto) finance. Credit is sometimes not granted to a person who has financial instability or difficulty. The APR is derived from the pattern of advances and repayments made during the agreement. Companies frequently offer credit to their customers as part of the terms of a purchase agreement.’ Common forms of consumer credit include credit cards. retail loans (retail installment loans) and mortgages. required by the lender as an integral part of the credit agreement. to give potential borrowers a clear measure of the true cost of borrowing and to allow a comparison to be made between competing products. over and above the amount borrowed. Organizations that offer credit to their customers frequently employ a credit manager. and consequently residential mortgages are excluded from some definitions of consumer credit . such as those for credit insurance. This is a broad definition of consumer credit and corresponds with the Bank of England's definition of "Lending to individuals".

000 and above will increase the volume of information by a factor of 5.000. This is a major change in the data management environment. It is observed that foreign commercial banks are more dynamic than the local commercial banks. the local banks are not in a position to follow the principles of sound lending and standard execution process.000. this is not so in case of local banks. Moreover.secondary data were used in the study. Reaching SMEs To extend the availability of credit information to smaller credits --say down to Taka 100.000 – 1. the banking environment is more congenial in the foreign banks as compared to local banks. the proper concern government and bank authority should follow the recommendations of this study in order to make the scheme attractive to the prospective customers. This is one of the most important sources of credit for small enterprises and increasing this kind of credit requires improved. However. As regards the delinquency position of the consumer credit. Therefore. transparent methods for assessment of reliability of the borrowing organization. To increase the coverage to facilities of Taka 100. target market and specific products. The study revealed that consumer credit scheme has been popularizing among the customers of low-income and medium income levels. the study highlights the major problems involved in consumer credit scheme from the view points of both the customers and the bankers. It is further exhibited that the perceptions of the customers found to be clear as regards the various aspects of consumer credit scheme. The current methods used by CIB will not reach the trade credit issues and would burden the Bureau with about ten times more work in maintaining data bases and increase the number of information requests to more than 1. Therefore. Moreover.000 per day. A new approach is needed to provide credit information for SMEs requiring Taka 100. Furthermore. the study revealed that the delinquency rate is in a tolerable limit in the case of foreign banks. fees.000 requires a major expansion [factor of ten] in the data to be managed. But. foreign banks are more technical than the local banks to design the consumer credit program. Finally. It is exhibited that the foreign sample banks are providing better services as compare to local sample banks as regards consumer credit facilities. The study provides valuable recommendations as to remove those problems. the bank personnel have also clear perceptions as regards the various aspects of consumer credit scheme. it is seen that the foreign banks used to follow principles of sound lending and standard execution process. permission to initiate requests for information may be extended to sources of trade credit.10 To deal with such an increase there are significant implications for the CIB’s computer systems. . terms and conditions. If we focus on the number of companies potentially covered then the increase is a factor of 10. the banks personnel are always conscious regarding the ratio of recovery and failed installment of a consumer credit loan. The administrative processes of the central bank will probably not work to support such an expansion. Moreover. In respect of execution process of the scheme. It is also observed that the foreign banks are able to render better consumer credit services.

Near about 90% of the clients of this sector are female. Average interest offered by NGOMFIs on savings to the members is 5%. In the high interest rate environment of Bangladesh and the considerable business risks this can be a dangerous approach. in terms of the number of MFI as well as total membership. Bank Lending Bank lending is structured on providing collateral for loans. Indeed this is the common position in Asia. Over the period of June 2003 to June 2006 the growth rate was over 70% in terms of horizontal expansion of Micro credit borrower. and using the earnings from one company to start another company. Loan recovery rate is generally very high compare to the banking sector. lending has dominated commercial banking in Bangladesh. The banks are extra cautious and distrust the borrowers . three of them are very large and have coverage all over the country. For a limited company it is the practice to demand as collateral guarantees or real estate from directors in addition to the assets of the borrowing company. Service charge on credit varies from 10% to 20% at flat method of collection. Among NGO-MFIs more than 80 percent of the outstanding loan disbursed by the top 20 NGOs.09 million borrowers without considering overlapping figures.19 million poor borrowers are covered by Micro credit program by 2006. The total coverage of MCP in Bangladesh is approximately 30.000. The growth in the MFI sector. specialized government organizations and Non-Government Organizations (NGOs). The concept of asset based. However. Average loan size of NGO-MFIs was found around Taka 4. Micro credit programs of NGOs (known as NGO-Microfinance Institutions or NGOMFIs) and Grameen Bank play dominant role in this financial market. Individual groups expand dependent on bank credit for leverage. in a period of sustained rapid growth it is the most effective way to build industrial capacity. rather than activity based. the assets of the defaulting company may be insufficient.05 million borrowers. NGO-MFIs serve more than 61 percent and Grameen Bank alone serves 24 percent of the total borrowers.05 million borrowers covered by Micro credit program. about 62% are below poverty line and so over 11. Industrial Structure Much of the Bangladesh modern industrial sector is concentrated in 20-25 business groups. The financing of industry is largely through bank borrowing.5%. It is estimated that after considering the overlapping problem. was phenomenal during the 1990s and continues till today. The belief is that this is additional security in the event of default on the loan. Out of 18. which is expected to be over 40%. although capital markets have emerged to finance equity participation. which is over 90%.Micro credit: The member-based Microfinance Institutions (MFIs) constitute a rapidly growing segment of the Rural Financial Market (RFM) in Bangladesh. each of which effectively operates independent but under the direction of the core. all partners of Palli Karma-Sahayak Foundation (PKSF) charge 12. These groups are led by a small family group (the core) which invests over time in a number of companies. the effective coverage would be around 18. Micro credit programs (MCP) in Bangladesh are implemented by various formal financial institutions (nationalized commercial banks and specialized banks).

it is one of the greatest sources of risk to a bank’s safety and soundness. poor portfolio risk management. or weakness in the economy. As such. It tends to be situation-specific. And yet. The loan portfolio is typically the largest asset and the predominate source of revenue. They allow market participants to separate credit risk from the other types of risk and to manage their credit risk exposure by selectively transfer-ring unwanted credit risk to others. always a partial owner. This distinguishing of credit risk from other types of risk creates new opportunities for both hedging and investing. it is a primary supervisory activity.since the legal system provides little support to the lender. or at best poorly managed. Limited liability as a concept is lost. It is often unmanaged. Banking lending is generally only completed when there is collateral present. Once this is achieved the corporate veil is torn away. loan portfolio problems have historically been the major cause of bank losses and failures. Whether due to lax credit standards. Assessing Loan portfolio management involves evaluating the steps bank management takes to identify. collateral has no impact in the real world of Bangladesh as few foreclosures have been made and where these have been achieved the collected collateral value was 10% of the loan balance. even through such collateral has little real value and there is no central bank requirement for such. Effective management of the loan portfolio and the credit function is fundamental to a bank’s safety and soundness. and it does not easily fit to the concept of modern portfolio theory. and not well understood. Ironically. Therefore we might in practice expect collateral to cover 20-30% of the principal. Because review of the Loan portfolio management (LPM) process is so important.9 Of course by the time of default loan balances may be two or three times the original loan due to accumulating interest. Loan portfolio management (LPM) is the process by which risks that are inherent in the credit process are managed and controlled. Loan Portfolio Management Lending is the principal business activity for most commercial banks. Nevertheless. Managing credit risk exposure more effectively is crucial to improving capital market liquidity and efficiency. it is an important consideration in most business and financial transactions. The Directors. . company directors are basically forced to provide collateral in addition to the limited companies assets if they wish to obtain loans. Credit derivatives have emerged in the 1990s as a useful risk management tool. find that all of their assets are exposed for collection. Credit Risk In Banks Credit risk is arguably the most significant form of risk capital market participant’s face.

The reports are submitted by all the scheduled banks and the nonbanking financial institutions quarterly for all facilities from Taka 1-10 million and monthly for all facilities Taka 10 million and above.Credit Information Bureau The CIB has been in operation for several years. These are drawn from the statistics. Prime Commercial Bank of Pakistan. The need for such an organization had been discussed for several years and the Government included this in the Financial Sector Reform Project. This required a major data entry effort. The facilities total is determined by the sum of all facilities available to the company on the reporting date. Recently CIB has required the banks to . Rating Agency Malaysia Berhad. There are currently over 40 persons working of the CIB. The CIB went into operation in 1992. It is staffed with regular employees of the central bank who work in the CIB on rotation of their assignments. This report provides the balance on each facility as of the reporting data and information on the classification of the loan or facility if any. computer programs. The successful development of the CIB is largely due to the perseverance and drive of Nur Karim.000. and hardware to support CIB’s operations. Malaysia. lines of credit. Pakistan. and non-funded facilities [guarantees. This includes both funded [advances. Originally these forms were completed in paper versions by the banks and forwarded to the CIB. and DCR-VCR Credit Rating Company Ltd. At present there is no coverage for the large number of small enterprises borrowing less than Taka one million. Investment Corporation of Bangladesh. as a regular part of the bank. loans etc. The CIB is operated by the central bank. CIB to develop the reporting formats. L/Cs]. All financial institutions submit reports to the CIB on every borrower with a total exposure of more than one million Taka. The CIB collects information from banks on the condition of credit facilities to borrowers whenever the total exposure exceeds Taka 1. USA. computer and general cadres. The central bank established a separate unit headed by a General Manager5 tasked to develop the CIB. The FSRP worked with the Duff and Philps Credit Rating Co. No separate organization was established and so the CIB does not have a separate corporate identify. Mr.. Nur Karim was assigned this responsibility.000 [10 lakh].

We consider these numbers broadly consistent. Otherwise. as identification of a company is generally simple.000 borrowers listed and about 35. Consequently the credit exposures associated with a particular individual can be determined. as there is not always an exact correspondence with CIB’s records. there are multiple loans to enterprises. these indicate the type of information available to the CIB] There is currently no on-line connection between banks and the central bank. and some non-banking financial institutions are included in CIB’s database but not included in the Schedule Bank Statistics. [Schedule Bank Statistics. December 1997].000 borrowers. The owner's database is more difficult as there are differences in spelling and some room for mistakes in the matching process of Mr. there is great experience built up in resolving these problems although sometimes it takes time to do so. the criteria for bad debt only changes with the administrative process of classification. to the businesses which they own.e. At present the CIB database has approximately 25. the difference are businesses not now borrowing from the banking system. listed owners or directors as reported by the lending bank. . CIB has now successfully built up this database and generally it works well. There is also difficulty from submitted lists of directors and owners.provide the data on diskettes. [See Annex 3 for the forms used. Two databases are maintained by CIB: First the borrower database that lists all companies that have credit facilities. Moreover the classification condition of a loan changes only when the administrative process of classification is executed within the commercial bank. Building up the database for the businesses was straightforward.500 with balances of more than 1 million Taka. while total exposures may change. As CIB operates on total exposure. However. which greatly eases the time that it takes to enter information in the database. This is consistent with the number of loans at the end of 1997 as reported by the Scheduled Banks of 44. The data collection process is now well organized and the banks are experienced in the collection and submission of data on borrowers. This enables the CIB to review the total exposure of the company with all banks. The second data base is called the owners database. X with Mr. it links the owners i. Y.

processing.To broaden the availability of credit information to include trade credit and small businesses. We estimate the cost of the CIB operations to be quite low. .e. call it AAA and also the record of other companies which have a director of AAA on their boards. As coverage increases then the size of the loan decreases. XYZ is a director of AAA the CIB will search for other companies where XYZ is a director and report the record of those other companies. (i.OBJECTIVES Two objectives are recommended: . How does CIB work? A financial institution considering a loan asks for information from the CIB. loans and advances) the total outstanding and the amounts classified substandard. Thus is Mr. If all costs are included the central bank spends approximately Taka 150 on each application. This information is extended to cover other business establishments in which directors of the company applying for credit also serve as directors. doubtful. The lending banks are not identified. The use of this information is up to the individual commercial bank.8 The private sector would charge for the capital investment and additional analyses is required for a credit rating system. and bad/loss for each type of loan. This reporting procedure is focused on the idea that the owners and mangers of a company should be evaluated on the basis of their other operations. The exception is large loans or bank director loans requiring . The CIB checks the loan record of the company being considered for a loan. This is a very small part of the loan that is being studied which averages Taka 5 million.To shift the collection. CIB’s Operations In this section CIB’s operations are briefly reviewed. About Taka 250 report is a reasonable estimate. within the funded facilities. This information provides a picture of the current total exposure of the company to the banking sector and the quality of the loans. and provision of credit information from the central bank to the private sector. The CIB currently reports the funded and unfunded facilities outstanding and. On the other hand the systems become more complex. This is discussed under the section on expansion to SMEs.

structure and pricing are commensurate with the risk involved. Good – Satisfactory Risk (Grade2) The repayment capacity of the borrower is strong. The system should define the risk profile of borrower’s to ensure that account management. It is recognized that the banks may have more or less Risk Grades. Borrower Risk Grades should be clearly stated on Credit Applications. These borrowers are not as strong as Grade 2 .Bangladesh Bank approved 8 Based on 45 employees Average monthly compensation Taka 8. and special reports on loan recovery. The borrower should have excellent liquidity and low leverage. Risk grading is a key measurement of a Bank’s asset quality. Aggregate Score of 95 or greater based on the Risk Grade Scorecard. however. Where deterioration in risk is noted. where the existence of an adverse report on the company or a Director of the company blocks the credit. it is essential that grading is a robust process. All facilities should be assigned a risk grade. All security documentation should be in place. The more conservative risk grade (higher) should be applied if there is a difference between the personal judgement and the Risk Grade Scorecard results. The development and capital costs are probably Taka 1 crore.000 100% overhead 250 reports/day for 20 days/month. Risk Grading All Banks should adopt a credit risk grading system. eligibility for election. monitoring standards and account management must be appropriate given the assigned Risk Grade: Risk Rating Grade Definition Superior – Low Risk (Grade 1) Facilities are fully secured by cash deposits. earning 24% per year (including depreciation) would add another Taka 40 per report. The company should demonstrate consistently strong earnings and cash flow and have an unblemished track record. The following Risk Grade Matrix is provided as an example. Acceptable – Fair Risk (Grade3) Adequate financial condition though may not be able to sustain any major or continued setbacks. and as such. government bonds or a counter guarantee from a top tier international bank. In addition to the reports to banks making loans the CIB information is used to prepare special reports used in bank inspection. the Risk Grade assigned to a borrower and its facilities should be immediately changed. All security documentation should be in place.

Facilities should be downgraded to 4 if the borrower incurs a loss. In all cases. but should still demonstrate consistent earnings. these weaknesses may result in a deterioration of the repayment prospects of the borrower. cash flow and earnings. liquidation procedures or capital injection. A borrower should not be graded better than 3 if realistic audited financial statements are not received. and interest can still be taken into profits. Not yet considered non-performing as the correction of the deficiencies may result in an improved condition. excessive leverage). and interest income should be taken into suspense (non-accrual). An Aggregate Score of 4554 based on the Risk Grade Scorecard.borrowers. such as litigation. Full repayment of facilities is still expected and interest can still be taken into profits. An Aggregate Score of 35-44 based on the Risk Grade Scorecard Loss (non-performing) Grade 8 Assets graded 8 are long outstanding with no progress in obtaining repayment (in excess of 180 days past due) or in the late stages of wind up/liquidation. if the customer intends to create a lender group for debt restructuring purposes. This classification reflects that it is not practical or . loan payments routinely fall past due.Watch list (Grade 4) Grade 4 assets warrant greater attention due to conditions affecting the borrower. These borrowers have an above average risk due to strained liquidity. The proceeds expected from the liquidation or realization of security may be awaited. The prospect of recovery is poor and legal options have been pursued. loan rescheduling and provisioning must be followed. and the bank should pursue legal options to enforce security to obtain repayment or negotiate an appropriate loan rescheduling. Facilities should be downgraded to 5 if sustained deterioration in financial condition is noted (consecutive losses. An Aggregate Score of 65-74 based on the Risk Grade Scorecard. The adequacy of provisions must be reviewed at least quarterly on all non-performing loans. An Aggregate Score of 55-64 based on the Risk Grade Scorecard. These weaknesses jeopardize the full settlement of loans. and the anticipated loss should have been provided for. account conduct is poor. The continuance of the loan as a bankable asset is not warranted. Substandard (Grade 6) financial condition is weak and capacity or inclination to repay is in doubt. Loan loss provisions must be raised against the estimated unrealizable amount of all facilities. Assets should be downgraded to 7 if loan payments remain past due in excess of 90 days. higher than normal leverage. negative net worth. An Aggregate Score of 75-94 based on the Risk Grade Scorecard. Loans should be downgraded to 6 if loan payments remain past due for 60-90 days. if loan payments remain past due for 3060 days. Borrowers should have adequate liquidity. the industry or the economic environment. These assets would normally be secured by acceptable collateral (1st charge over stocks / debtors / equipment / property). due to specifically identifiable pending factors. thin cash flow and/or inconsistent earnings. If left uncorrected. Marginal . cash flow and have a good track record. the asset is not yet classified as Loss. or other untoward factors are present. Doubtful and Bad (non-performing) Grade 7 full repayment of principal and interest is unlikely and the possibility of loss is extremely high. the operation has ceased trading or any indication suggesting the winding up or closure of the borrower is discovered. However. or if a significant petition or claim is lodged against the borrower. Special Mention (Grade 5) Grade 5 assets have potential weaknesses that deserve management’s close attention. the requirements of Bangladesh Bank in CIB reporting.

. The downgrading of an account should be done immediately when adverse information is noted. After approval. and should not be postponed until the annual review process. Bangladesh Bank guidelines for timely write off of bad loans must be adhered to. The Early Alert Process should be completed in a timely manner by the RM and forwarded to CRM for approval to affect any downgrade. An Aggregate Score of 35 or less based on the Risk Grade Scorecard At least top twenty-five clients/obligors of the Bank may preferably be rated by an outside credit rating agency.desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future. the report should be forwarded to Credit Administration. who is responsible to ensure the correct facility/borrower Risk Grades are updated on the system.

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