Staff Reporter :
In a move to align with international best practices, Bangladesh Bank (BB) has further tightened the definition of overdue loans. According to a circular issued on Wednesday, all loans will now be classified as overdue starting the day after the expiry date, or from the creation of a forced loan, or from the due date if not repaid.
The classification period for overdue loans remains unchanged at three months, meaning loans will be considered in default six months after the repayment expiry date. Between 6 and 12 months, loans will be classified as “doubtful,” and those overdue for 12 months or more will be classified as “bad loans.”
This new directive comes in the form of Master Circular No. 15, issued by Bangladesh Bank’s Banking Regulation and Policy Department, after a gap of 12 years. The circular consolidates instructions on loan classification and provisioning, in line with Basel-III principles.
Under these guidelines, banks must maintain provisions against their general category loans at a rate of 1 per cent to 5 per cent of their operating profits.
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.
The central bank emphasized that a strong financial sector is essential for Bangladesh’s growing economy, and timely measures must be taken to reduce the rate of defaulted loans. The guidelines are part of ongoing reforms in the banking sector and will take effect from 1 April 2025.
In a separate circular, Bangladesh Bank also announced the introduction of 90-day and 180-day tenure bills, in addition to the existing 7, 14, and 30-day bills, to enhance the effectiveness of liquidity management and implement monetary policy. Auctions for these new bills will be held as per previous rules and regulations.
Meanwhile, 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.
Likewise, the shortfall in provisions in the country’s banking sector nearly doubled at the end of September due to increased distressed assets in banks, especially in the state-run ones.
According to Bangladesh Bank data, the provision shortfall in the sector soared to Tk 55,378 crore in September from Tk 31,549 crore in June.
