The Bangladesh Bank has relaxed the Internal Credit Risk Rating System (ICRRS) for Small and Medium Enterprise (SME) manufacturers by increasing the loan ceiling used for risk assessment.
Manufacturers with loan exposure lower than Tk1 crore will be exempted from ICRRS, which was previously set at Tk50 lakh. Moreover, potential borrowers will be allowed to use their work order as collateral under the modified ICRRS guideline.
The Bangladesh Bank issued a circular on Wednesday, announcing the modification in ICRRS guideline, and extending its implementation deadline from June 30 to October 1. During this period, banks will follow the existing credit risk rating system for evaluating potential borrowers.
The ICRRS refers to the system for analysing a borrower's ability to repay loans based on information regarding the financial condition, including liquidity, cash flow, profitability, debt profile, market indicators, industry and operational background, management capabilities, and other indicators.
“We have brought changes in the ICRRS guideline after facing demands from banks to relax the credit risk rating for SMEs and included the work order option as collateral,” said Husne Ara Shikah, deputy general manager of Bangladesh Bank.
“The implementation time of the guideline was extended as many banks could not comply with it due to a strict rating system,” she added.
The rising default loan, along with weak credit assessment of the banks, had prompted the central bank to issue new guidelines for strengthening credit risk management of the banks.
Earlier in 2005, the central bank issued credit risk grading manual for banks to analyse repayment risk of their borrowers.