MODULE G

CREDIT RISK GRADING MATRIX

Reference No.:

M/S RMCI/Pr. SME Cntr/2012

Khulna Power Company Limited

Borrower
Group Name (if any)
Branch:
Industry/Sector
Date of Financials
Completed by
Approved by
Number

N/A
N/A
Power
20.06.2014
Md. Rakibul Hassan
Md Sajib Hossain
Grading

Date:

30.04.2014
87

Aggregate Score:
Risk Grading:

GD

Short

Score

Superior

SUP

Fully cash secured, secured by government

guarantee/international bank guarantee

2
3
4
5
6
7
8
9
10
11

Good
Satisfactory
Acceptable
Fair
Watch
Marginal
Special Mention
Substandard
Doubtful
Bad/Loss

GD
SAT
ACCPT
FA
WA
MG
SM
SS
DF
BL

85+
80-84
75-79
70-74
65-69
60-64
55-59
45-54
35-44
<35

Parameter

Score

Actual Parameter

Score Obtained

High (>20%)
Moderate (10% - 20%)
Average (0% - 10%)

4
3
2

22.82%

Declining (<0%)
High (>12%)
Moderate (6% - 12%)
Average (0% - 6%)

0
4
3
2

20.86%

Criteria
A. Financial Risk
1. Gross Profit Margin

Weight
50%

2. Operating Profit Margin

Declining (< 0%)

3. Net Profit Margin

High (>8%)
Moderate (4% - 8%)
Average (0% - 4%)
Declining (< 0%)

4
3
2
0

19.19%

4. Retention of Profits

High (>70%)
Average (25%-70%)

2
1

High (>70%)

Weak (<25% or company is in Loss situation)

High (<=90)
Moderate (91-120)
Average (121 - 270)

0
4
3
2

-35

Weak ( >270)
High (>2)
Moderate (1.5 - 2)
Average (1 - 1.5)
Weak (<1)

0
5
4
2
0

1.08

7. Leverage

Very Low (<1)

Low (1 - 1.5)
Moderate (1.5 - 2)
High (>2)

5
4
2
0

0.91

8. Interst Coverage Ratio

Strong (>4)
Moderate (2 - 4)
Average (1 - 2)

3
2
1

10.65

Weak (<1)

Strong (>3)
Moderate (2 - 3)
Average (1 - 2)

3
2
1

1.34

Weak (<1)
High (>20%)
Moderate (10% - 20%)
Static (0% - 10%)
Declining (<0%)
Positive

0
5
3
2
0
2

-0.95%

Positive

Negative

Positive

Positive

Negative

Excellent
Satisfactory

2
1

Excellent

5. Cash Conversion Cycle (Days)

6. Current Ratio

9. Debt Service Coverage

10. Sales/Revenues Growth

11. Gross Cash from Operation

12. Net Cash After Operation
13. Debt Structure

Weak

14. Access to Credits in

Other Banks

High (>5)
Easy (3-4)
Reasonable (2)
Difficult

4
3
2
0

High (>5)

15. Financial Statement Reporting

Audited
Un-Audited

2
1

Audited

Total Score- Financial Risk

B. Business/ Industry Risk 18%
1. Size of Business (in BDT million)
The size of the borrower's business
measured by the most recent year's
total sales. Preferably audited numbers.

50
>1000.00

600.00-1000.00
300.00 600.00
100.00 300.00
50.00 - 100.00
25.00 - 50.00
< 25.00

5
4
3
2
1
0

40.00
13542.10

MODULE G

CREDIT RISK GRADING MATRIX

2. Age of Business

> 10 Years

The number of years the borrower

engaged in the primary line of business

> 5 - 10 Years
2 - 5 Years
< 2 Years

2
1
0

3. Business Outlook

Favorable

Critical assesment of medium term

prospects of industry, market share
and economic factors.
4. Industry Growth

Slightly Uncertain
Cause for Concern

1
0

Strong (>10%)

Moderate (1%-10%)
No Growth (<1%)

1
0

Dominant Market Player

Average Market Player
Insignificant Market Player
Difficult

2
1
0
2

Average
Easy

1
0

5. Market Competition

6. Entry/Exit Barriers

Total Score- Business/Industry Risk

C. Management Risk

Favorable

Moderate (1%-10%)

Dominant Market Player

Difficult

18

17

12%

1. Experience

More than 10 years in the related line of business

Quality of management based on total

# of years of experience of the senior
management in the Industry.

510 years in the related line of business

15 years in the related line of business
No experience

3
2
0

2. Second Line/ Succession

Ready Succession
Succession within 1-2 years
Succession within 2-3 years
Succession in question

3. Organization Structure

More than 10 years in the related line of

business

4
3
2
0

Ready Succession

MNC/ Govt. organization

Local Corporate (Ltd liability company)/

NGO

Local Corporate (Ltd liability company)/ NGO

Proprietorship concern/ partnership

2
1
12

Total Score- Management Risk

D. Security Risk
10%
1. Security Coverage (Primary)

2. Collateral Coverage (Property

Location)

3. Support (Guarantee)

Fully Pledged facilities/substantially cash covered /

Reg. Mortg. for EBL

Registered Hypothecation (1st Charge/1st Pari passu

Charge)

2nd charge/Inferior charge

Simple hypothecation/Negative lien on assets
No security
Registered Mortgage on Municipal corporation/Prime
Area property

2
1
0
4

Registered Mortgage on Pourashava/Semi-Urban area

property

Equitable Mortgage or No property but Plant and

Machinery as collateral

Negative lien on collateral

No collateral

1
0

Personal Guarantee with high net worth or Strong

Corporate Guarantee

Personal Guarantees or Corporate Guarantee with

average financial strength

No support/guarantee

0
10

Total Score- Security Risk

E. Relationship Risk

15/10/1997

11
Fully Pledged facilities/substantially cash
covered / Reg. Mortg. for EBL

Registered Mortgage on Municipal

corporation/Prime Area property

Personal Guarantee with high net worth or

Strong Corporate Guarantee

10

10%

1. Account Conduct

More than 3 years Accounts with faultless record (No

Past dues)

Less than 3 years Accounts with faultless record

Some times past due but past due always less than 30
days

Sometimes past due but past due between 60 to 90

days/ Account continuously in past due situation

Contracts being frequently SMA or inferior

Full Compliance

0
2

Conditions

Some Non-Compliance
No Compliance

1
0

3. Personal Deposits

Personal accounts of the key business Sponsors/

Principals are maintained in the bank, with significant
deposits

No depository relationship
Regular
Overdues/SMA/ Rescheduling

0
2
1

2. Compliance of Covenants /

4. CIB Report

Classification/ Write off

Total Score- Relationship Risk
Grand Total - All Risk

More than 3 years Accounts with faultless

record (No Past dues)

Some Non-Compliance

Personal accounts of the key business

Sponsors/ Principals are maintained in the
bank, with significant deposits

Regular

0
10
100

9
87

B69:

Debt Structure
When capital assets are financed through term debts with gradual amoritzation, it is called a well structured debt. Balloon or bullet repayment of the entire
loan or substantial portion will disturb the cash flow and the company will resort to additional short term loans. When fixed assets are financed through short
term borrowing, it is considered a mismatch.
Excellent - When the fixed assets are financed through the owners' funds
Satisfactory - When the fixed assets are financed through mix of owner's funds and term debts
Weak - When the fixed assets are financed through short term borrowings (or a mix of short and long term borrowings).

B72:

Access to Credits in other Banks

(Base your decision on analyzing the last 4 quarters figures)
Adequate credit facilities from Banks. Many other Banks are pursuing them for relationship. CIB reports reflect the level and increasing trend of facilities from
other Banks.
High - The client should have banking relationship atleast with 5 banks
Easy - The client should have banking relationship with 3 to 4 banks
Reasonable - The client should have banking relationship with 2 banks
Difficult - The client is maintaining banking relationship with only EBL

CREDIT RISK GRADING SCORE SHEET

Reference No.:

Date:

M/S RMCI/Pr. SME Cntr/2012

Khulna Power Company Limited

Borrower
Group Name (if any)
Branch:

N/A
N/A

Industry/Sector
Date of Financials

Power
20.06.2014

Completed by
Approved by

30.04.2014
88

Aggregate Score:
Risk Grading:

Good

Md. Rakibul Hassan

Md Sajib Hossain
Number
1
2
3
4
5
6
7
8

Grading
Superior
Good
Acceptable
Marginal/Watchlist
Special Mention
Substandard
Doubtful
Bad/Loss

Criteria
A. Financial Risk

Weight

Parameter

Short
SUP
GD
ACCPT
MG/WL
SM
SS
DF
BL

Score
Fully cash secured, secured by government
guarantee/international
85+ bank guarantee
75-84
65-74
55-64
45-54
35-44
<35

Score

Actual Parameter

Score Obtained

0.91

11

50%

1. Leverage: (15%)

Less than 0.25

15

Debt Equity Ratio () - Times

Total Liabilities to Tangible Net worth

0.26 to 0.35 x
0.36 to 0.50 x
0.51 to 0.75 x
0.76 to 1.25 x
1.26 to 2.00 x
2.01 to 2.50 x
2.51 to 2.75 x
More than 2.75

14
13
12
11
10
8
7
0

2. Liquidity: (15%)
Current Ratio () -Times
Current Assets to Current Liabilities

Greater than 2.74

2.50 to 2.74 x
2.00 to 2.49 x
1.50 to 1.99 x
1.10 to 1.49 x
0.90 to 1.09 x
0.80 to 0.89 x
0.70 to 0.79 x
Less than 0.70

15
14
13
12
11
10
8
7
0

1.08

10

3. Profitability: (15%)
Operating Profit Margin (%)
(Operating Profit/Sales) X 100

Greater than 25%

20% to 24%
15% to 19%
10% to 14%
7% to 9%
4% to 6%
1% to 3%
Less than 1%

15
14
13
12
10
9
7
0

20.86%

14

More than 2.00

More than 1.51 Less than 2.00
More than 1.25 Less than 1.50
More than 1.00 Less than 1.24
Less than 1.00

5
4
3
2
0
50

10.65

5
4
3
2
1
0
3

1354.21

2. Age of Business

> 60.00
30.00 59.99
10.00 29.99
5.00 - 9.99
2.50 - 4.99
< 2.50
> 10 Years

15/10/1997

The number of years the borrower

engaged in the primary line of business
3. Business Outlook

> 5 - 10 Years
2 - 5 Years
< 2 Years
Favorable

2
1
0
3

Favorable

Critical assesment of medium term

prospects of industry, market share
and economic factors.
4. Industry Growth

Stable
Slightly Uncertain
Cause for Concern
Strong (10%+)

2
1
0
3

Good (>5% - 10%)

Good (>5% - 10%)

Moderate (1%-5%)
No Growth (<1%)

2
1
0

All calculations should be based on

annula financial statements of the
borrower (audited preferred)

4. Coverage: (5%)
Interest Coverage Ratio () - Times
Earning before interest & tax (EBIT)
Interest on debt

Total Score- Financial Risk

40

B. Business/ Industry Risk 18%

1. Size of Business (in BDT crore)
The size of the borrower's business
measured by the most recent year's
total sales. Preferably audited numbers.

CREDIT RISK GRADING SCORE SHEET

5. Market Competition

6. Entry/Exit Barriers

Dominant Player

Moderately Competitive
Highly Competitive

1
0

Difficult

Average
Easy

1
0
18

Total Score- Business/Industry Risk

C. Management Risk

More than 10 years in the related line of

business

Quality of management based on total

# of years of experience of the senior
management in the Industry.
2. Second Line/ Succession

510 years in the related line of business

15 years in the related line of business
No experience
Ready Succession

3
2
0
4

Succession within 1-2 years

Succession within 2-3 years
Succession in question

3
2
0

Very Good
Moderate
Poor
Regular Conflict

3. Team Work

Difficult

17

More than 10 years in the

related line of business

Ready Succession

3
2
1
0
12

Very Good

Fully Pledged facilities/substantially cash

covered / Reg. Mortg. for EBL

Fully Pledged
facilities/substantially
cash covered / Reg.
Mortg. for EBL

Registered Hypothecation (1st Charge/1st Pari

passu Charge)

2nd charge/Inferior charge

Simple hypothecation/Negative lien on assets

2
1

No security

0
4

Registered Mortgage on
Municipal
corporation/Prime Area
property

Personal Guarantee with

high net worth or Strong
Corporate Guarantee

Total Score- Management Risk

12

10%

1. Security Coverage (Primary)

2. Collateral Coverage (Property

Location)

3. Support (Guarantee)

Registered Mortgage on Municipal

corporation/Prime Area property

Registered Mortgage on Pourashava/SemiUrban area property

Equitable Mortgage or No property but Plant

and Machinery as collateral

Negative lien on collateral

No collateral

1
0
2

Personal Guarantee with high net worth or

Strong Corporate Guarantee
Personal Guarantees or Corporate Guarantee
with average financial strength
No support/guarantee

Total Score- Security Risk

E. Relationship Risk
1. Account Conduct

12%

1. Experience

D. Security Risk

Dominant Player

0
10

10

10%
More than 3 years Accounts with faultless
record

More than 3 years

Accounts with faultless
record

Less than 3 years Accounts with faultless

record

Accounts having satisfactory dealings with

some late payments.

Frequent Past dues & Irregular dealings in

account

2. Utilization of Limit
(actual/projection)

More than 60%

40% - 60%
Less than 40%

2
1
0

100.00%

3. Compliance of Covenants /
Conditions

Full Compliance

Some Non-Compliance

Some Non-Compliance
No Compliance

1
0
1

4. Personal Deposits

Personal accounts of the key business

Sponsors/ Principals are maintained in the
bank, with significant deposits

Personal accounts of the

key business Sponsors/
Principals are maintained
in the bank, with

CREDIT RISK GRADING SCORE SHEET

No depository relationship
Total Score- Relationship Risk
Grand Total - All Risk

0
10
100

9
88

Weight

CRGM

CRG

Total Score- Financial Risk

Risk Component

50

40

40

Total Score- Business/Industry Risk

18

17

17

Total Score- Management Risk

12

11

12

Total Score- Security Risk

10

10

10

Total Score- Relationship Risk

10

100

87
GD

88
Good

Total

Rating

Difference
0
0
1
0
0
1