Quality of Internal Risk Rating Frawework at Commercial Banks in Pakistan

Abstract

This research was conducted to investigate the quality of internal credit risk rating systems maintained by the commercial banking industry of Pakistan with reference to multiple areas specific to an internal rating system. For this study expert interviews with heads of risk or credit risk management department of purposely seected ten commercial banks were conducted. The findings were derived using qualitative content analysis of the interviews. It was found that internal risk rating systems mainatined by Pakistan’s commercial banking industry have good quality generally, however, there is some improvement needed in areas such as:
1. Practices related to internal risk rating methodologies.
2. Practices related to the documentation for the various areas in an internal risk rating framework.
3. Other areas including construction of credit grades, rating methodologies, consideration of credit ratings from external agencies, definitions and criteria of ratings were found consistent with the guidelines from the SBP.