The Bangladesh Bank on Wednesday tightened loan classification rules by reducing classification period of overdue loans into non-performing ones to six months that was previously nine months.
The BB issued a master circular in this regard on the day, which will come into effect from April 1, 2025.
BB officials said that the new categorisation was made as per instruction of the International Monetary Fund.
鈥楢ll the loans will be treated as past due/overdue from the following day of the expiry date or from the creation of the forced loan or from the due date if not repaid/renewed,鈥� it said.
If a loan remains overdue for 3 to 6 months, it will be classified as substandard, the first step of non-performing loans, according to the circular.
Currently, the period of such classification is 3 to 9 months.
The loans will be classified as doubtful if they remain overdue for 6 to 12 months. Currently, the period is 9 to 12 months.
If the loans remain overdue for more than 12 months, it will be classified as bad/loss.
Due to the reduction of period, the non-performing loans will see an increase, bankers said.
Moinul Islam, former economics professor at Chittagong University, told 抖阴精品 that adopting the revised categorisation of non-performing loans was consistent with internationally accepted standards and should be implemented.
He noted that this system was previously in use but was altered by the prior government to obscure the extent of defaulted loans.
On the implications of the change, he acknowledged that the shorter NPL classification period could increase reported NPL volumes and pose challenges for certain businesses.
However, he emphasised that businesses must adapt to the globally recognised standard to align with international practices.
According to Bangladesh Bank data, the amount of defaulted loans shot up by more than Tk 1 lakh crore to Tk 2,84,977 crore in September compared with that of Tk 1,82,295 crore at the end of March 2024 and Tk 1,45,633 crore at the end of December 2023.
As of September, nearly 17 per cent of total bank loans 鈥� amounting to Tk 16.82 lakh crore 鈥� was classified as non-performing, the highest ratio in South Asia.
According to the circular, banks must maintain provisions against their general category loans at a rate of 1 per cent and 5 per cent of the loan balance for Special Mention Accounts (SMA), a new category introduced in the circular.
Loans that remain overdue for 2 to 3 months will be categorised as SMA.
For classified loans in the substandard category, provisions must be set at 20 per cent, while classified loans in the doubtful category require provisions of 50 per cent.
Banks are required to set aside 100 per cent of the amount of classified loans in the bad or loss category as provisions, which are to be taken from their profits.
Islamic banks must adhere to this loan classification and provisioning policy for their investments.
If any loan is classified as sub-standard and doubtful, interest accrued on such loan will be credited to Interest Suspense Account instead of crediting the same to Income Account.
As soon as any loan or advance is classified as bad loan, charging of interest in the same account will cease.
The classification of each individual loan must be justified in writing and the documentation must contain the signatures of both the persons assigning the classification and the person reviewing it.
