All forms of loans will be classified as non-performing after three months of being overdue – as an replace of the most original six months – effective from April 2025, because the central bank aligns the rule of thumb with international handiest practices under Basel III.
The Bangladesh Monetary institution the day earlier than this day issued a grasp circular, amending the classification and provisioning of all loans, which specialists believe will lead to a expansive amount of credit turning into non-performing loans (NPLs).
Central bank officials said the overdue coverage earlier turn into once in step with international practices since 2012.
Since 2019 for the duration of the Awami League regime, debtors of term loans were allowed a six-month grace duration after the preliminary three-month overdue duration, facilitating routine mortgage defaulters. This signifies that if a borrower failed to pay their mortgage instalment within 9 months, it will be classified as an NPL.
Nonetheless since September, the overdue duration has been reduced from 9 months to six months, in accordance with stipulations space by the International Monetary Fund (IMF) as phase of a $4.7 billion mortgage bundle for Bangladesh.
Efficient in an instant, NPLs in the banking sector sharply surged by a staggering Tk73,586 crore in the September quarter, marking a file quarterly develop.
By the cease of September, entire NPLs rose to Tk2,84,977 crore, accounting for nearly 17% of the country’s prominent loans, which entire nearly Tk16.83 lakh crore.
Selim RF Hussain, managing director of BRAC Monetary institution, told The Commercial Identical old, “If the Bangladesh Monetary institution’s contemporary grasp circular is aligned with international standards, now we want to score it.
“This could also make some difficulties for banks in the short term.”
The seasoned banker known as for recognising the wired sources in the country’s banking sector and expressed his hope that the sphere will leap relieve.
Given the adjustments in the commercial cycle, international dynamics, debtors’ possibility profiles over time, and international handiest practices, it’s predominant for supervisors to on a long-established basis review and update rules on NPLs and provisioning insurance policies to make particular simpler possibility administration.
Basel III standards also require supervisors to scrupulously video show whether or now now not banks have tough insurance policies and processes in snort for managing credit possibility.
“The Bangladesh Monetary institution plans to put in pressure an Expected Credit score Loss methodology-essentially essentially based provisioning system for banks in accordance with International Monetary Reporting Standards by 2027,” reads the document.
All loans and advances will be grouped into four categories for classification applications: continuous mortgage, query mortgage, fastened-term mortgage, and temporary agricultural credit.
The Classification and Provisioning Principles snort that every and every forms of loans will be reported as Special Mention Accounts (SMA) from the overdue duration till the following three months.
Loans will be classified as unfriendly from the overdue duration till six months. Loans overdue for six to 9 months will be classified as doubtful, and loans overdue for just a few year will be reported as immoral/loss.
If all forms of loans are identical old, the bank will have a 1% provision on the mortgage prominent. If the mortgage is classed as SMA, a 5% provision will be made in opposition to the mortgage prominent.
Additionally, if the mortgage is sub-identical old, a 20% provision will be required. If it is classed as doubtful, a 50% provision will be made, and whether it is classed as immoral/loss, a 100% provision will be made.
Mohammad Shahriar Siddiqui, director of the relevant department of Bangladesh Monetary institution, said utterly different steps had been taken by the government and the central bank for reforms in the banking sector.
“The contemporary grasp circular on mortgage classification and provisioning will make it possible to resolve the particular quality of sources. This contemporary grasp circular has been presented after 2012,” he added.
