An Exploratory Study on Bangladesh’s Emerging Credit Rating Industry

Abstract

A key dilemma for credit rating agencies (CRAs) is how they act during the time of rating (whether neutrally or not) as their principal sources of revenue come from whose products they are rating (client/issuers). The severe competitions among the CRAs infuse them to grab the clienteles and retain them even by giving favorable rating. This very issue elicits the possibility of existence of conflict of interest among the CRAs and the issuers. This further ignites the unhealthy competition among CRAs , particularly in a very small country like Bangladesh where the number of CRA is not paucity in numbers ( specifically eight CRAs in Bangladesh whereas in USA, the biggest corporate space of the world has only three major CRAs and only the two- Moody’s and S&P are dominant). The ratings provided by CRAs are now challenged very frequently and they are vehemently commented. The very common observation about the rating is that CRAs are more relaxed during the boom years and vice versa. And the paradox of competition among CRAs reduces the efficiency and quality of ratings since it facilitates ratings shopping for the clients/issuers and results in excessively high reported ratings.