PACRA Introduces Bank Loan Rating and Recovery Rating

The Pakistan Credit Rating Agency (PACRA) has decided to introduce a new credit rating product namely Bank Loan Rating and Recovery Rating. In this context, PACRA has already prepared a concept paper and circulated it among commercial banks currently included in PACRA's rating universe. On receipt of these comments, appropriate changes, if any, would be made before the formal launching of the product.

Banks require sophisticated and detailed information and analysis on its loans. While making a loan decision, the degree of investment risk - likely recovery in the event of default - is as important as the default likelihood. Bank Loan Rating (BLR) attempts to answer these diverse needs through a single rating measure. It focuses on both the risk of default and likelihood of ultimate recovery in the event of default. BLR would facilitate implementation of standardized approach of capital adequacy calculation - Basel II accord.