BB probe into rating agency finds
A Bangladesh Bank investigation has found that Bangladesh Development Rating Agency Ltd sent financial information of its clients — hundreds of small and medium enterprises — to India violating BB regulations, said officials of the BB and the Bangladesh Securities and Exchange Commission. BDRAL, a credit rating agency, is using an online web-based system and a server, both are hosted in New Delhi, to calculate the ratings of SME clients using bank and third party provided information in clear violation of the BB regulation, the report said.
‘According to the terms and conditions of the BB recognition letter given to BDRAL, the agency is supposed to process, maintain and secure data within local set up in Bangladesh,’ explained a BB official.
He said that BDRAL had virtually ‘trafficked in’ financial information of hundreds of SMEs of Bangladesh to India in the process of calculating the ratings in New Delhi.
The central bank on October 10, 2013 gave recognition to BDRAL, which was established in 2009 by Dun and Bradstreet South Asia Middle East Limited, as external credit assessment institute.
Dun and Bradstreet holds 51 per cent share of the company while nine local banks and NBFIs that includes BRAC Bank, National Bank, Southeast Bank, NCC Bank, Bank Asia, Mutual Trust Bank, Eastern Bank, IDLC Finance and Delta BRAC Housing Finance Corporation own the rest of the 49 per cent share.
BDRAL so far has conducted ratings of more than 1,000 SMEs.
Following the BB investigation, which was carried out in June this year and found a number of other irregularities, the central bank issued a notice against the company asking it why the BB recognition would not be cancelled for the violation of regulations.
‘The agency in reply sought time for making its business compliant with BB regulations. But it has already made much damage,’ said another BB official.
He said that the agency might lose the BB recognition.
A copy of the investigation report was sent to the BSEC which gave BDRAL credit rating licence in 2012.
The BB investigation found that BDRAL was using an online web-based system ‘Aplan Sentinel Integration Project (ASIP)’ and ASIP database and web site are hosted in New Delhi.
During the investigation, BDRAL failed to show any service level agreement (SLA) with the vendor although as per the Guidelines on ICT Security for Scheduled Banks and FIs there should a SLA between the vendor and users.
‘Besides, BDRAL has no meaningful access and control over its own-purchased software. Only one official is authorised to communicate with the ASIP authorities through email for handling system related problems. Even no log file is maintained for future protection. In addition to this, the company cannot download their own input data from the system,’ said the BB report.
The BB inspection report said that the BSEC had given licence to BDRAL only for SME rating but it conducted corporate rating violating the condition.
The BB inspection team found an instance of corporate rating for ‘Integra International’ which cannot be embraced into SME definition, the BB report said.
Besides, the central bank team found that BDRAL engaged in collecting and supplying information of different companies as per request received from its parent company Dun & Bradstreet South Asia Middle East Ltd violating the BSEC licence.
BDRAL managing director Saikat Poddar is also regional director of Dun & Bradstreet, violating the regulations, as such type of double post holding might raised question over ensuring independence and integrity of the rating agency’s activities, the report said.
According to the central bank regulation, each rating agency should have a unique pricing system for credit rating to be disclosed annually.
The report said Poddar remained out of the country most of the time.
BDRAL web site indicates that its minimum fee is Tk 10,000 for conducting a company rating, but the company is charging Tk 5,000 which is contradictory with its disclosed rating fee.
The BB report said that nine local banks and financial institutions in Bangladesh have equity participation with BDRAL’s ownership structure, so it may have sufficient possibility of conflict of interest in the market discipline perspective if the company conducts rating of the clients of any of the nine financial institutions.
The inspection team unearthed that BDRAL was rating NCC Bank’s clients, though the bank has five per cent equity participation in BDRAL.
A BSEC official told New Age that the BSEC gave licences to new credit rating agencies to operate their business after which the agencies will have to take recognition from the central bank to conduct rating of the bank’s clients.
A scheduled bank can not calculate the capital adequacy ratio against the risk weighted asset of a company if it (company) does not conduct rating from a recognised credit rating agency of the BB.
So, the business volume of a credit rating agency will depend on the central bank’s recognition, the official said.
New Age went to BDRAL office at Karwan Bazar for Poddar’s comment but he was not found as he was abroad.
Khandaker Mahfuzur Rahman, head of business reporting and compliance officer of BDRAL, told New Age on Tuesday that his company had replied the central bank show-cause notice on August 28.
He said, ‘The central bank’s questions against BDRAL are valid. So, we have applied the BB for more time to comply with the central bank’s directives.’
-With New Age input
