ICRA Nepal is going to evaluate credit worthiness of borrowers from financial institutions to gauge their repayment capacity.
Currently, financial institutions themselves appraise borrowers on the basis of financials submitted while applying for the loans to approve it by them. They also seek information from Credit Information Bureau to track their credit history.
ICRA Nepal has introduced rating parameters directed at corporate borrowers of financial institutions called Bank Loan/Line of Credit Rating. It will rate borrowers on their capacity to timely repay a specific line of credit, based on the future cash generation and their debt servicing.
However, the rating parameters should be approved by the central bank. If the central bank recognises the rating assigned by the agency to borrowers as an indicator of the risk associated with the loans issued, lending institutions can manage their capital adequacy better.
Financial institutions assign certain risk weightage to their assets based on the BASEL, while calculating capital adequacy ratio, so more capital is required to cushion a probable default of riskier lending.
Apart from credit rating, ICRA Nepal is also proposing Claims Paying Ability Ratings for insurance companies. The rating will help prospective policy buyers to select an insurer based on their claims settlement capacity.
The rating will help analyse an insurer’s business fundamentals and its competitive position, and focuses primarily on insurer’s franchise value, its management, organisational structure and underwriting and investment strategies.