CRAB accredited as ECAI by Bangladesh Bank

In April 2009, Bangladesh Bank accredited Credit Rating Agency of Bangladesh Ltd as an External Credit Assessment Institution (ECAI). Under the standardized approach for calculating risk weighted assets against credit risk, the credit rating is to be determined on the basis of risk profile assessed by the ECAIs. Banks will use the ratings of the ECAIs and corresponding risk weight for calculating RWA for credit risk under the standardized approach. 

Mapping of CRAB with BB risk grade

 

BB rating grade

Equivalent rating of CRAB

1

AAA

2

AA1, AA2

3

AA3, A1, A2, A3

4

BBB1, BBB2, BBB3

5

BB1, BB2, BB3, B1, B2, B3, CCC1, CCC2

6

CCC3, CC, C, D

 

Short Term Rating

S1

ST-1

S2

ST-2

S3

ST-3

S4

ST-4

S5

ST-5

S6

ST-6

 About Basel II

 Basel II is recommendatory framework for banking supervision, issued by the Basel Committee on Banking Supervision in June 2004. The objective of Basel II is to bring about international convergence of capital measurement and standards in the banking system. The Basel Committee members who finalized the provisions are primarily representatives from the G10 countries, but several countries that are not represented on the committee have also stated their intent to adopt this framework.

 

BB, in December 2008, has issued guidelines on the New Capital Adequacy Framework (BRPD Circular 09, dated 31.12.08) to banks operating in Bangladesh, based on the Basel II framework. These guidelines inform that BB suggests implementation of Basel II with the following approaches:

i)              standardised approach for calculating RWA against credit risk

ii)             standardised approach for calculating RWA against Market Risk; and 

iii)           basic indicator approach for calculating RWA against Operational Risk

Under the standardised approach for measuring credit risks, the risk grades are determined on the basis of ratings assigned by the ECAIs.

 Risk Weights of Corporate Claims under Basel II

 

CLAIMS ON CORPORATE (excluding equity exposures)

Bangladesh Bank Rating Grade

Equivalent CRAB Rating

Risk Weight

%

1

AAA

20

2

AA1, AA2

50

3,4

AA3, A1, A2, A3, BBB1, BBB2, BBB3

100

5,6

BB1, BB2, BB3, B1, B2, B3, CCC1, CCC2, CCC3, CC, C, D

150

Unrated

125