Regulatory Alerts2022-02-23
Added
BRPD Circular Letter No. 07: Guidelines on Internal Credit Risk Rating System
The document amends specific sections of BRPD Circular Letter No. 14/2021 regarding the Internal Credit Risk Rating System, establishing revised thresholds for the Probability of Default (PD) and Loss Given Default (LGD) components. These new guidelines apply to institutions with deteriorating financial conditions due to the pandemic and remain in effect until December 31, 2023. Upon this date, the previous circular is reinstated and the instructions in this letter are cancelled.
Banking Regulation and Policy Department Bangladesh Bank Head Office Dhaka. Ref No.: BRPD BRPD Circular Letter No.-07
February 23, 2022 Date: ------------------- 10 Falgun 1428
To, The Managing Director/Chief Executive Officer All Scheduled Banks operating in Bangladesh.
Dear Sir,
With reference to the subject cited above, you are requested to kindly note BRPD Circular Letter No.-14, dated: 23/02/2021.
- The global impact of the COVID-19 situation continues to be present in various sectors of the country's economy. In order to overcome this situation, various stimulus packages have been announced by Bangladesh Bank. Due to the business operations in 2020 and 2021 not remaining stable as before, the financial statements of some industrial/business/commercial institutions have relatively worsened, causing these institutions to face difficulties in taking new loans or renewing previous loans. In this context, to accelerate and further speed up business operations nationwide, considering the current financial status of bank borrowers, the following instructions will remain in force until December 31, 2023, replacing the instructions mentioned in Section 1.8 and Section 1.10(f) of BRPD Circular Letter No. 14/2021, with the aim of obtaining necessary loan facilities from banks and/or continuing the renewal of existing loans:
1.8 Components of Probability of Default
The Probability of Default (PD) is determined based on the following criteria:
a) Probability of Default (PD) = 4-Step PD
| Financial Status | Probability of Default (PD) |
|---|---|
| Healthy | ≥75% |
| Special Mention | ≥65%: <75% |
| Substandard | ≥50%: <65% |
| Doubtful | <50% |
1.10 Loss Given Default (LGD)
f) For the Probability of Default (PD) determined in Step 4, if the Loss Given Default (LGD) is 40% or more, the institution shall be classified as "Doubtful".
-
From January 01, 2024, BRPD Circular Letter No.-14, dated: 23/02/2021 will be reinstated and the instructions of this circular letter will be considered cancelled.
-
These instructions are issued under the powers conferred by Section 45 of the Bank Company Act, 1991.
These instructions will come into force immediately.
Yours faithfully,
(Md. Ali Akbar Farazi) Deputy General Manager Phone: 9530095