1.1. Rationale of the Report
In today’s world, banking sector has become an integral part of overall economy around the world. Millions of people are involved in banking sector. In Bangladesh, banking sector has experienced enormous growth over the past few decades. Millions of depositors, borrowers and other related parties have interest in this sector. Creditworthiness of banks is rated by CRAB and CRISL in Bangladesh.
The idea behind our report on “Credit Rating Report on Uttara Bank Limited (UBL)” is to give credit rating of UBL by considering both qualitative and quantitative factors with judgement.
1.2 Origin of the Report
This report has been prepared as a requirement for completion of MBA program under University of Dhaka. We have prepared the report under course F-504(Fixed Income Securities) with directions and valuable guidelines from our honorable course teacher Muhammad Mujibul Kabir, Associate Professor, Department Of Finance, University Of Dhaka.
3. Objectives of the Report
Broad Objective: To do credit rating of Uttara Bank Limited (UBL) by considering important qualitative and quantitative information along with application of proper judgment.
Specific Objectives: The objectives of the report are-
➢ To have an overall picture regarding the credit rating procedure of banking sector. ➢ To be informed with the trend and performance of the bank. ➢ To get an idea of factors affecting credit rating score of UBL.
4. Scope of the Report
This report has been prepared to do credit rating of a particular bank (UBL) as assigned by our course teacher. 5. Methodology
1.5.1 Data Collection: The report is primarily based on secondary and published information. The major sources of information are published research reports and papers, DSE library, newspapers, data from annual report of UBL and peer banks, rating methodology of S&P etc.
1.5.2 Techniques of Data Analysis
Both qualitative and quantitative statistical techniques were used for this research.
• Qualitative tools: bar graphs and trend line were used to present the collected data.
• Software used: Microsoft Excel 2007, Microsoft word 2007, stata software version 10.
In preparing the report, the main limitations that we faced were- • Reliance on secondary data, mainly annual reports of banks. Sometimes, published data suffer from accounting manipulation.
• We had to prepare the credit rating report within a short time frame. Taking more time would have made the report more comprehensive.
SECTION-II: THEORETICAL DISCUSSION ON CREDIT RATING
2.1. Why Credit Rating Is Necessary
A credit rating evaluates the credit worthiness of a debtor, especially a business (company) or a government. It is an evaluation made by a credit rating agency of the debtor's ability to pay back the debt and the likelihood of default. Credit ratings are determined by credit ratings agencies. The credit rating represents the credit rating agency's evaluation of qualitative and quantitative information for a company. The credit rating is used by individuals and entities that purchase the bonds issued by companies and governments to determine the likelihood that the government will pay its bond obligations. A poor credit rating indicates a credit rating agency's opinion that the company or government has a high risk of defaulting, based on the agency's analysis of the entity's history and analysis of long term economic prospects. 2.1. Corporate Credit Ratings
The credit rating of a corporation is a financial indicator to potential investors of debt securities such as bonds. Credit rating is usually of a financial instrument such as a bond, rather than the whole corporation. There are two types of corporate credit rating: 1. entity rating
2. issue rating