Companies get better credit ratings despite growing NPL
Despite growing non-performing loans (NPL) local business companies mysteriously continues to get better credit ratings. The issue raised questions among experts in financial reporting and statements. According to them, Bangladesh Bank (BB) lacks in regular and proper monitoring over renewal and new credit ratings of banks and their clients as per its guidelines.
The business conglomerates who fail to repay loans fear that if they go for new credit ratings to obtain bank loans, their current ratings may be downgraded or they might become disqualified which will increase their costs of borrowings.
Meanwhile several banks are also not keen for new ratings, since low ratings will expose their low capital performance and hamper the banks' image in the market. A chief executive officer of a leading agency, requesting anonymity said the rising non performing loans collide with good performance of many companies. He said there are discrepancies between the companies and their ratings. Currently at least six credit rating firms are operating in the local markets, he said.
He said the banks are randomly giving loans to their clients whether they have been recently rated or have renewed their ratings. It is tantamount to practicing double standards in the money market.
Referring to a local newspaper he said, "Some clients are using date expired rating documents to borrow money from banks as they fear to go for fresh ratings due to failure in repaying previous loans in time."
Referring to his own credit firm's statistics, he said last year his firm did ratings for over 5000 clients, of which 40 per cent are new and only 60 per cent are old. However, he said that only a few business houses despite their huge classified loans got better scores.
He said, "As per BB rules every year the bank clients must go for credit ratings but many of the old clients are getting fresh loans despite becoming money defaulters."
A senior BB official said most of the business houses violate central bank rules on credit rating before taking loans, fearing that borrowing costs may be higher on rating performance. Banks with adequate capitals usually do not require ratings of their clients. But the banks, which are facing capital shortage, usually expect the borrower company to be rated before sanctioning loans to them.
As per international rules, banks are bound to keep a certain amount of money in their reserve accounts against loan that varies on rating performance. When a company performs well, it can lower its cost of borrowing.
Another senior BB official said banks or financial institutions consider rating as an indication of an entity's performance measuring yardstick. Entities with a higher rating are sanctioned loans at a lower interest rate whereas a lower rated company has to pay higher rate.