Definition

Credit rating is an analysis of the credit risks associated with a financial

instrument or a financial entity. It is a rating given to a particular entity based on
the credentials and the extent to which the financial statements of the entity are
sound, in terms of borrowing and lending that has been done in the past.

Types of Credit Ratings

Each credit agency uses its own terminology to determine credit ratings. That said,
the notations are strikingly similar among the three credit agencies. Ratings are
bracketed into two groups: investment grade and speculative grade.

Investment grade ratings mean the investment is considered solid by the

rating agency, and the issuer is likely to honor the terms of repayment. Such
investments are typically less competitively priced in comparison to speculative
grade investments.

Speculative grade investments are high risk and, therefore, offer higher
interest rates to reflect the quality of the investments.

Scales of Credit Rating

Rating Definition
                      AAA Debt instruments rated AAA have extremely strong
Triple A(Extremely capacity to meet financial commitments. These are
Strong Capacity) judged to be of the highest quality, with minimal
 credit risk.

            AA1, AA2, AA3* Debt instruments rated AA have very strong capacity
to meet financial commitments. These are judged to
Double-A be of very high quality, subject to very low credit
risk.
(Very Strong Capacity)
Debt instruments rated A have strong capacity to
                   A1, A2, A3 meet financial commitments, but susceptible to the
Single-A adverse effects of changes in circumstances and
economic conditions. These are judged to be of high
(Strong Capacity) quality, subject to low credit risk.

Debt instruments rated BBB have adequate capacity

           BBB1, BBB2, BBB3 to meet financial commitments but more
susceptible to adverse economic conditions or
Triple B changing circumstances. They are subject to
moderate credit risk. Such rated projects possess
(Adequate Capacity)
certain speculative characteristics.

Debt instruments rated BB have inadequate capacity

                BB1, BB2, BB3 to meet financial commitments. They have major
ongoing uncertainties and exposure to adverse
Double B business, financial, or economic conditions. Such
projects have speculative elements, and are subject
(Inadequate Capacity)
to substantial credit risk.

                 B1, B2, B3 Debt instruments rated B have weak capacity to

Single B meet financial commitments. They have speculative
elements and are subject to high credit risk.
(Weak Capacity)
           CCC1, CCC2, CCC3 Debt instruments rated CCC have very weak capacity
Triple C to meet financial obligations. They have very weak
standing and are subject to very high credit risk.
(very Weak Capacity)
 Debt instruments rated CC have extremely weak
                      CC
capacity to meet financial obligations. They are
Double C highly speculative and are likely in, or very near,
default, with some prospect of recovery of principal
(Extremely Weak Capacity) and interest.

Debt instruments rated C are highly vulnerable to

non-payment, have payment arrearages allowed by
                       C the terms of the documents, or subject of
bankruptcy petition, but have not experienced a
Single C payment default. Payments may have been
suspended in accordance with the instrument’s
(Near to Default)
terms. They are typically in default, with little
prospect for recovery of principal or interest.

D rating will also be used upon the filing of a

               D(Default) bankruptcy petition or similar action if payments on
an obligation are jeopardized.

BIG 3 Credit Rating Agencies of The world

 S&P Global Ratings (previously Standard & Poor’s) is an American credit

rating agency (CRA) and a division of S&P Global that publishes financial
 research and analysis on stocks, bonds, and commodities. S&P is
considered the largest of the Big Three credit-rating agencies, which also
include Moody's Investors Service and Fitch Ratings. Its head office is
located on 55 Water Street in Lower Manhattan, New York City
 Moody's Investors Service, often referred to as Moody's, is the bond credit
rating business of Moody's Corporation, representing the company's
traditional line of business and its historical name. Moody's Investors
Service provides international financial research on bonds issued by
commercial and government entities. Moody's, along with Standard & Poor's
and Fitch Group, is considered one of the Big Three credit rating agencies.

The company ranks the creditworthiness of borrowers using a standardized ratings

scale which measures expected investor loss in the event of default. Moody's
Investors Service rates debt securities in several bond market segments. These
include government, municipal and corporate bonds; managed investments such as
money market funds and fixed-income funds; financial institutions including banks
and non-bank finance companies; and asset classes in structured finance. In
Moody's Investors Service's ratings system, securities are assigned a rating from
Aaa to C, with Aaa being the highest quality and C the lowest quality.

Moody's was founded by John Moody in 1909 to produce manuals of statistics

related to stocks and bonds and bond ratings. In 1975, the company was identified
as a Nationally Recognized Statistical Rating Organization (NRSRO) by the U.S.
Securities and Exchange Commission. Following several decades of ownership by
Dun & Bradstreet, Moody's Investors Service became a separate company in 2000.
Moody's Corporation was established as a holding company.[4]

 Fitch Ratings Inc. is an American credit rating agency and is one of the
"Big Three credit rating agencies", the other two being Moody's and
Standard & Poor's. It is one of the three nationally recognized statistical
rating organizations (NRSRO) designated by the U.S. Securities and
Exchange Commission in 1975.

Fitch Ratings is dual headquartered in New York and London. Hearst owns 100
percent of the company following its acquisition of an additional 20 percent for
$2.8 billion on April 12, 2018. Hearst had owned 80 percent of the company after
increasing its ownership stake by 30 percent on December 12, 2014, in a
transaction valued at $1.965 billion. Hearst's previous equity interest was 50
percent following expansions on an original acquisition in 2006.Hearst had jointly
owned Fitch with FIMALAC SA, which held 20 percent of the company until the
2018 transaction. Fitch Ratings and Fitch Solutions are part of the Fitch Group.

The firm was founded by John Knowles Fitch on December 24, 1914, in New
York City as the Fitch Publishing Company. In 1989, the company was acquired
by a group including Robert Van Kampen. In 1997, Fitch was acquired by
FIMALAC and was merged with London-based IBCA Limited, a FIMALAC
subsidiary. In 2000 Fitch acquired both Chicago-based Duff & Phelps Credit
Rating Co. (April) and Thomson Financial Bank Watch.

Fitch Ratings is the third largest NRSRO rating agency, covering a more limited
share of the market than S&P and Moody's, though it has grown with acquisitions
and frequently positions itself as a "tie-breaker" when the other two agencies have
ratings similar, but not equal, in scale.

In September 2011, Fitch Group announced the sale of Algorithmic (risk analytics
software) to IBM for $387 million.

Credit Rating Agencies of Bangladesh

 Alpha Credit Rating Limited
 ARGUS Credit Rating Services Ltd
 Credit Rating Agency of Bangladesh Ltd (CRAB)
 Credit Rating Information and Services Ltd (CRISL)
 Emerging Credit Rating Ltd
 National Credit Ratings Ltd
 The Bangladesh Rating Agency Limited
 WASO Credit Rating Company (BD) Limited

Briefly Discussion about the Credit Rating Agencies of Bangladesh

Credit Rating Agency of Bangladesh Ltd. (CRAB) is the leading credit rating
company in Bangladesh.
CRAB is a technical partner of ICRA Limited, India. The company was promoted
by some of the leading industrial and business personalities of the country as well
as institutional investors.

CRAB is an external credit assessment institution accredited by Bangladesh Bank,

the central bank of Bangladesh. This allows the company's ratings to be used by
banks and financial institutions for capital adequacy reporting under Basel 2 and 3.

It is also accredited with Insurance Development & Regulatory Authority of

Bangladesh for rating of insurance companies.

CRAB has by 2014 rated more than 4,000 entities and instruments. Over the years,
CRAB has carried out rating assignments across a wide spectrum of industries,
including, agro inputs, automotive, cement, cold storage, textile, garments,
engineering, rice mill, food and allied, pharmaceuticals, telecom, steel, trading,
banks, FIs, MFIs, insurances and utilities (power, oil & gas, and transportation).
CRAB's extensive and in-depth sector specialization ensures not only rating
consistency but also quicker turnaround.

CRAB's highly specialized analyst teams servicing clients across the country and
thereby ensuring comprehensive geographic coverage. CRAB's ratings are used
extensively by all kinds of investors and lenders to assess risks associated with
credit or investment decisions. Besides, CRAB's ratings and consultancy are also
used as key inputs for strategic purposes by players in the corporate, public
finance, financial, infrastructure and utilities, and structured finance sectors, among
others.

ARGUS Credit Rating Services Ltd. (ACRSL) is the next-generation Credit Rating
Agency of Bangladesh. Founded as a joint-venture between global experts in
credit & equity research and local sponsors with strong capital markets track
record, ACRSL received its license from the SEC in 2011. Since then Argus
completed more than 6200 rating assignments including Banks, NBFI’s, Insurance,
Financial Instruments, Large and reputed corporate entities and SME clients.
Quality report, timely delivery and extraordinary service through multinational
standard relationship management. Argus is now a prominent name in the
Industry and considered as preferred choice for Credit rating service.
As a result of the initiative of a few distinguished and renowned professionals
of Bangladesh, Alpha Credit Rating Ltd. (Alpha Rating) was incorporated on
the 24th of February 2011 with support and organizational assistance from
SATCOM IT LTD., Axis Resources Ltd., Equity Care Bangladesh Ltd. and TAN
Equity and Investment Ltd.

Its founding partners are professionals, who fully understand local customs and the
complexities of the social and political structure of Bangladesh’s business
environment. Alpha Rating has technical collaboration with Istanbul International
Rating Services Inc. (TURK rating) which brings a wealth of experience working
with national and international rating agencies, particularly in emerging markets. It
is this combination of international experience and local insight which enables
Alpha Rating to offer a unique value through its rating service- a distinct
competitive advantage.

Credit Rating Information and Services Limited (CRISL) is the first credit rating
company in Bangladesh. This company was incorporated with the Registrar of
Joint Stock Companies in 1992 and Credit Rating Company rules 1996 as a
recognized and has been operating as the first rating company in the country since
1995.

National Credit Ratings Limited (NCR) is a full service rating company that
offers a wide range of services. Incorporated as a public company, NCR started its
business with a paid up capital of TK 20.00 million. The Securities and Exchange
Commission granted the license to NCR in June 2010 under the Credit Rating
Companies Rules 1996.The company is recognized by the Bangladesh Bank as an
External Credit Assessment Institution (ECAI).

Function of the Credit Rating Agencies of Bangladesh

The Securities and Exchange Commission of 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 were
licensed by the SECB after 2002, which were later accorded status of external
credit assessment institutions by Bangladesh Bank. Thereafter, the SECB and
Bangladesh Bank issued rules and regulations toward 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, domestic credit rating agencies 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
external credit assessment institutions status to more domestic credit rating
agencies banking sector financing to corporate borrowers is receiving a boost. The
number of domestic credit rating agencies 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 SMEs ratings apart from the
usual bank loan ratings. Access to adequate financing is still a chronic problem for
SMEs in Asia and here, credit ratings could fill a critical gap in the credit
information continuum, moving away from collateral-based lending to risk-based
lending.