Default Study

Default rate

Default rate refers to the proportion of rated entities that default within a specified time period, typically expressed as a percentage. It is calculated by dividing the number of defaults during the period by the number of entities that held the rating throughout the period. Default rates can be measured across different rating categories and over various time horizons.

Methodology

NCR adopts the cohort (static pool) approach to evaluate the default performance of its rated entities across rating categories. Cohorts are formed from all issuers with active long-term ratings at the beginning of each calendar year within the study period. The analysis is conducted at issuer level, not instrument level.

For each cohort, the Cumulative Default Rate (CDR) is calculated over one-year, two-year and three-year horizons. These default rates are then aggregated using an issuer-weighted average to determine long-term CDRs for each rating category. As credit ratings are designed to reflect the likelihood of default, higher-rated categories are expected to demonstrate lower cumulative default rates, confirming the ratings' predictive validity with respect to credit risk.

Corporate

NCR has conducted a default study for clients rated between 2018 and 2023, to see whether any issuer has defaulted — that is, gone down to the level of the “D” category.

The categories are AAA, AA+, AA, AA-, A+, A, A-, BBB+, BBB, BBB-, BB+, BB, BB-, B+, B, B- and C. NCR has experienced no cumulative default rate on a one-year, two-year or three-year basis.

SME

NCR has also conducted a default study for SME clients rated between 2018 and 2023, to see whether any issuer has gone down to the level of the “NSME-7” category.

The categories are NSME-1 through NSME-7. NCR has experienced no cumulative default rate on a one-year, two-year or three-year basis.

Disclaimer

This study is developed by National Credit Ratings Limited (NCRL) based on data and information from secondary reliable sources, in compliance with the guidelines provided by the Bangladesh Securities and Exchange Commission and Bangladesh Bank. NCRL puts its best efforts into preparing this document. It may inherit human, technical or systematic error as its limitation, and NCRL therefore provides no warranty of any kind. This is the property of NCRL and none of the information may be copied, reproduced, stored or disseminated in whole or in part without the written consent of NCRL.