Credit Rating Services in Nepal: An Assessment Report

This document resulted from a fact-finding study conducted to assess the situation in Nepal with a view to recommend a regulatory and operational framework for a credit rating agency aimed at protecting its emerging financial sector. It also introduces the basic principles underlying credit rating agencies and the rating process.

The first part of the paper describes what a credit rating agency is. It covers:

• The need for credit rating agencies;
• Functions of these agencies;
• Basic principles which guide these agencies;
• Criteria for determining credit ratings;
• Rating symbols;
• Fees.

The paper explains the roles and the constraints faced by some of the key institutions operating in the financial markets of Nepal. The institutions that the paper covers are:

• The Credit Information Bureau (CIB);
• The Nepal Stock Exchange (NEPSE);
• The Securities Board.

The paper concludes with a set of recommendations. The author:

• Proposes to restructure the CIB into Loan Information Bureau (LIB) and defines the scope of activities to be performed by this entity.
• Recommends the setting up of a credit rating agency that would create the enabling environment for the capital markets of Nepal and protect the investing public.