1.1 Rationale for the study:
The prediction of credit ratings is of interest to many market participants. Portfolio risk managers often need to predict credit ratings for unrated issuers. Issuers may seek a preliminary estimate of what their rating might be prior to entering the capital markets. For that matter, the rating agencies themselves may seek objective benchmarks as an initial input in the rating process. Understanding the increasingly important role of ratings, especially in the light of Basel II guidelines, consistent and uniform default definition is critical and it has significant impact on the reliability and comparability of ratings across rating agencies.
The Bangladesh financial sector is under going through a phase of transition, transformation and convergence. The regulators are more active than ever before to bring the sector up to an international standard. The competitive environment created with the presence of too many banks in a small economy has also been forcing the Banks to increase risk in both sides of the balance sheet. In the asset side, banks are shifting from traditional financing from sector corporations to private and retail sectors such as financing to small private sector group business, housing, automobile commercial vehicles and SMEs etc. On the liabilities side, the transformation is from passive retail strategy to a very active retail trust to attract and retain customers and increase in deposit base. So all the interested parties of a bank need to understand the creditworthiness of that bank and credit rating most importantly serves this purpose.
As a requirement of the course “F-504: Fixed Income Securities”, this report has been prepared to predict the credit rating of Eastern Bank Limited as an entity.
1.2 Objectives of the Report:
The objectives of this report can be divided into mainly two segments such as: Overall Objective: The overall objective of the report is to predict the credit rating of EBL. Specific Objectives: The specific objectives of this report are to - * Scrutinize the performance & risks of the banking industry in Bangladesh. * Analyze the keys to success & other factors that contributed to success of EBL. * Analyze the historical & cross- sectional performance of EBL. * Determine the influence of various factors on credit rating based on multiple regression analysis. * Determine the composite credit score &predict the credit rating of EBL.
1.3 Scope of the Report:
The scope of this report can be divided in mainly four segments as following:
Regional Scope: This report covers information about 13 private commercial banks in Bangladesh and these banks have their operations across the country.
1 Periodical Scope: This report covers the period from 2002 to 2011 in case of EBL & only 2011 for the other selected banks. 2
Institutional Scope: This report considers 13 private commercial banks such as EBL, NCC bank, Standard bank, Trust Bank, UCBL, Uttara Bank, Agrani Bank, Dhaka Bank, AB Bank, SIBL, City Bank , Jamuna Bank & One Bank ltd. 3
4 Analytical Scope: In this report, the historical information of the banks is mainly presented. Many tables & graphs in this report are shown based on the time series analysis and cross-sectional analysis. Also multiple regression analysis has been done in this report.
The methodology of this report contains the following parts: 1.4.1 Data sources:
This report primarily contains the secondary and published information. The major sources of information are the published research reports and papers, published reports from the selected banks, Bangladesh Bank etc. The information was collected mostly from the websites of various organizations via internet. 1.4.2 Tools & Techniques:
In this report, two types of analysis have been done such as qualitative & quantitative...