Staff Reporter :
Bangladesh Bank (BB) has introduced a set of newly modified guidelines for loan classification and provisioning for the scheduled commercial banks, in an apparent move to bring down the banking sectors’ overall defaulted loans, which already reached an alarming level inviting danger for the country’s financial system.
Banking Regulation and Policy Department (BRPD) of BB issued a circular in this regard on Sunday setting new norms for the loan classification and provisioning in view of facilitating the existing business environment and aligning with the economic cycle.
Under the provision in the new guideline, a continuous loan, demand loan, fixed term loan or any installment(s)/part of installment(s) of a fixed term loan which will remain past due/overdue for a period of 03 (three) months or beyond but less than 09 (nine) months, the entire loan will be put into the “Sub-standard (SS)”.
Earlier, a loan tuned into Sub-standard if it is not serviced for three months.
Besides, a continuous loan, demand loan, fixed term loan or any installment(s)/part of installment(s) of a fixed term loan which will remain past due/overdue for a period of 09 (nine) months or beyond but less than 12 (twelve) months, the entire loan will be put into the “Doubtful (DF).”
Prior to this, a loan is determined as ‘doubtful’ if it remained overdue for a period of 06 (six) months or beyond but less than 09 (nine) months.
Under the new loan classification and provisioning guidelines, a continuous loan, demand loan, fixed term loan or any installment(s)/part of installment(s) of a fixed term loan which will remain past due/overdue for a period of 12 (twelve) months or beyond, the entire loan will be put into the “Bad/Loss (B/L).”
Earlier, an account turned into” Bad/Loss (B/L)” if it is not serviced for 09 (nine) months.
According to the circular, loans have to be treated as defaulted loan as per section 5(GaGa) of the Banking Companies Act, 1991 and to be reported accordingly as per formats given in BRPD Circular No.08 dated August 02, 2015. In this regard, a portion of the “Sub-standard (SS)” loans will be reported as defaulted loan.
The circular will come into force from 30 June 2019, according to Bangladesh Bank.
Once the new loan classification, provisioning policy is implemented, it allow loan defaulters to get additional benefit while banks will an extra time to keep the provision against sub-standard, doubtful and bad loans.
Currently, banks have to maintain 20 per cent provision against the sub-standard loan accounts, 50 per cent against the doubtful loan accounts and 100 per cent against the bad loan accounts.
The central bank earlier issued a relaxed loan write-off policy to allow banks to reduce their overall defaulted loans, which already reached an alarming level causing concern for the banking sectors’ stability.
As of December last year, state-owned banks have written off Tk 23,186 crore and private banks Tk 28,042 crore.
Defaulted loans at the country’s commercial reached Tk 93,911 crore as of December last year the compared to Tk 74, 303 crore at the end of December 2017. That means, defaulted loans at banks increased by Tk 19, 608 crore just a period of one year.
