Write down the expected minimum CRG requirements for extending credit. Explain with example

 Definition of Numbers of Credit Risk Grading

A clear definition of the different categories of Credit Risk Grading is given as follows:

 

Risk Rating	Grade	Definition
Superior – Low Risk	1	 Facilities are fully secured by cash deposits  Government bonds or a counter guarantee from a top tier international bank.   All security documentation should be in place.
Good – Satisfactory Risk	2	 The repayment capacity of the borrower is strong.  The borrower should have excellent liquidity and low leverage.   The company should demonstrate consistently strong earnings and cash flow.   All security documentation should be in place.  Aggregate Score of 95 or greater based on the Risk Grade Scorecard.
Acceptable – Fair Risk	3	Adequate financial condition though may not be able to sustain any major or continued setbacks.  These borrowers are not as strong as Grade 2 borrowers, but should still demonstrate consistent earnings, cash flow and have a good track record  An Aggregate Score of 75-94 based on the Risk Grade Scorecard.
Marginal – Watch list	4	 Grade 4 assets warrant greater attention due to conditions affecting the borrower, the industry or the  Economic environment.

 

		 These borrowers have an above average risk due to strained liquidity, higher than normal leverage, thin cash flow and/or inconsistent earnings.   Aggregate Score of 65-74 based on the Risk Grade Scorecard.
Special Mention	5	 Grade 5 assets have potential weaknesses that deserve management‘s close attention.   If left uncorrected, these weaknesses may result in a deterioration of the repayment prospects of the borrower   An Aggregate Score of 55-64 based on the Risk Grade Scorecard.
Substandard	6	 Financial condition is weak and capacity or inclination to repay is in doubt   Loans should be downgraded to 6 if loan payments remain past due for 60-90 days   Not yet considered non-performing as the correction of the deficiencies may result in an improved condition, and interest can still be taken into profits.   An Aggregate Score of 45-54 based on the Risk Grade Scorecard.
Doubtful and Bad (non- performing)	7	 Full repayment of principal and interest is unlikely and the possibility of loss is extremely high.   However, due to specifically identifiable pending factors, such as litigation, liquidation procedures or capital injection, the asset is not yet classified as Loss.  The adequacy of provisions must be reviewed at least quarterly on all non-performing loans, and the bank should pursue legal options to enforce security to obtain repayment or negotiate an appropriate loan rescheduling.   In all cases, the requirements of Bangladesh Bank in CIB reporting, loan rescheduling and provisioning must be followed.   An Aggregate Score of 35-44 based on the Risk Grade Scorecard
Loss (non- performing)	8	 Assets graded 8 are long outstanding with no progress in obtaining repayment (in excess of 180 days past due) or in the late stages of wind up/liquidation.   The prospect of recovery is poor and legal options have been pursued.   The proceeds expected from the liquidation or realization of security may be awaited. The continuance of the loan as a bankable asset is not warranted   An Aggregate Score of 35 or less based on the Risk Grade Scorecard