Discuss the internal credit risk ratings and scores based on the guidelines on ICRRS issued by Bangladesh Bank.
Bangladesh Bank introduced the Internal Credit Risk Rating System (ICRRS) to measure borrowers’ creditworthiness objectively and consistently. The system helps banks to assess credit risk before approving or renewing credit facilities.
Different sectors have different characteristics. They differ in terms of leverage, liquidity, and profitability. Therefore, ICRRS captures these sector-wise differences. It does so through a combination of quantitative and qualitative assessments.
The total ICRRS score consists of:
- Quantitative Assessment: 60%
- Qualitative Assessment: 40%
Based on the total score, a borrower is placed into one of the following four rating categories.
| Rating | Original Score | Revised Score |
| Excelent | ≥ 80% | ≥ 75% |
| Good | ≥ 70% to < 80% | ≥ 65% to < 75% |
| Marginal | ≥ 60% to < 70% | ≥ 50% to < 65% |
| Unacceptable | < 60% | < 50% |
Excellent
Excellent is the highest rating category. It is assigned to borrowers who score at the top of the rating scale.
These borrowers have strong financial fundamentals. They maintain good liquidity and low leverage. They also demonstrate satisfactory qualitative attributes. These include management capability and repayment behavior.
Banks can freely lend to borrowers in this category. Therefore, Excellent represents the lowest level of credit risk.
Good
Good is the second-highest rating category. Borrowers in this category are also considered safe for lending.
They may not have the strongest financial position. However, their overall risk profile remains acceptable.
Along with Excellent, banks can lend to Good-rated borrowers without any additional restrictions.
Marginal
Marginal is a cautionary rating category. Borrowers in this category show weaknesses in financial indicators, qualitative factors, or both.
Banks are not prohibited from lending to these borrowers. However, banks should exercise greater caution. They should monitor these accounts more closely, conduct more frequent client visits, and check future business prospects carefully.
Banks may also ask for additional collateral before renewing or extending credit facilities.
Unacceptable
Unacceptable is the lowest rating category. It indicates a high level of credit risk. As a general rule, banks cannot sanction fresh loans to borrowers in this category.
However, a few exceptions are allowed. Banks may sanction such loans if they are 100% cash covered. They may also lend if the facility is guaranteed by the Government or a Multilateral Development Bank (MDB). The same exception applies to loans meant for state-owned entities or government projects.
ICRRS also applies a special rule to the quantitative score. If the quantitative score is below 50%, the overall rating automatically becomes Unacceptable. This rule applies regardless of how high the qualitative score may be. Banks may renew or enhance an existing Unacceptable loan only two times.
Color Codes
For easier reporting, ICRRS assigns a color code to each rating category. These color codes help management quickly identify the borrower’s risk level. They are especially useful in the executive summary report.
| Rating | Color Code |
| Excellent | Green |
| Good | Blue |
| Marginal | Yellow |
| Unacceptable | Red |
Credit Operations & Management, Module: B, 5th Exam Q2(c), 96th Exam 3(c)
