Banks link credit rating to loans

Banks will ask its respective individual corporate clients to conduct credit rating of their enterprises before getting any loan sanctioned.
The Association of Bankers Bangladesh (ABB), a forum of chief executive officers of 30 private banks, took the decision Wednesday at a meeting on the central bank's rigidity that banks go for Basel II implementation from January.
“We have to ask clients to do credit rating, otherwise we'll be in trouble as per the directive of the Bangladesh Bank (BB),” said K Mahmood Sattar, chairman of ABB and chief executive officer and managing director of The City Bank.
However, bankers seek B's intervention in this regard. Otherwise, it will be difficult for them to pressure corporate clients for credit rating, they say.
They demand the central bank's direct involvement in making such rating mandatory like what it has done with the CIB (Credit Information Bureau) report. CIB report is a must for bank borrowing at an amount of at least Tk 50,000.
“We will request BB to make credit rating mandatory for corporate clients, ” said Shahjahan Bhuiyan, ABB's vice chairman and managing director of United Commercial Bank who chaired the forum's Wednesday meeting.
Credit rating for corporate client is one of the conditions, as Basel II imposed. It is an internationally deal agreed by central banks of different countries. Under the Basel II framework, banks have to comply with international standards including capital adequacy, risk management and greater disclosures of bank business data.
A bank has to keep 125 percent provision for a loan without credit rating, while it is 50 percent for rated firms.
For BB's continuous pressure, however, some banks have already started issuing letters to its big corporate clients to rate their enterprises. Pubali Bank is one of those.
“We have been issuing letters to our borrowers to do credit rating,” said Helal Ahmed Chowdhury, Pubali's managing director.
Chowdhury said the move will place both the lenders and borrowers in a comfortable position.
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