The Bangladesh Bank (BB) has made lending risk analysis mandatory for all lending equivalent to Tk 1 crore and above for both fresh and renewal cases.
The central bank has also given the banks the authority to fix the interest rates and other conditions based on risk factors.
A circular sent by the BB to all the banks last week identifying various risk factors said at the pre-sanction stage, credit grading helps the sanctioning authority decide whether to lend or not. The grading also helps determine the loan price, extent of exposure and appropriate credit facility and various facilities and risk mitigation tools to put a cap on the risk level, the circular added.
The circular has made a Credit Risk Grading (CRG) scale consisting eight categories such as superior, good, acceptable, marginal, special mention, sub standard, doubtful, bad and loss.
A BB source said a particular bank will sanction fresh loans if a particular loan proposal can be placed in one of the first four positions of the CRG scale. The CRG scale will be prepared evaluating five such particular risk factors as financial risk, business risk, management risk, security risk and relationship risk.
For Instance, the evaluation of business risk will be determined by business outlook, business size, industry growth, market competition and barriers to entry and exit.
A BB source said in early 90s there were guidelines for analysing risks under the first reform programme in the banking sector, but those were not mandatory.
Now it has been made mandatory for the banks to analyse the risk factors from April 1 next year. The central bank's inspection team will monitor from time to time if the banks are analysing these factors.
When asked if this mandatory risk analysis will put the new entrepreneurs into trouble regarding getting new loans, the BB sources replied in the negative. Rather it will stop ill competition and strengthen lending discipline, they said.
Khondkar Ibrahim Khaled, managing director of Pubali Bank, said it is a good initiative, but without adequate information it is difficult to follow the manual. In 1993 a similar attempt was made, but due to lack of adequate data it could not work.
The BB can consider setting up an institution, which will disseminate information regarding risk analyses, Ibrahim Khaled recommended.
