BRPD Circular Letter No. 33: Regarding Loan Rescheduling and Restructuring

Bangladesh Bank Chief Executive Office Motijheel, Dhaka-1000 Bangladesh. Ref No.: BRPD Banking Regulation and Policy Department 03 August 2022 BRPD Circular Letter No. 33 Date: ----------------- 19 Sraban 1429

Managing Director/Chief Executive Officer All Scheduled Banks operating in Bangladesh.

Dear Sir,

Regarding Loan Rescheduling and Restructuring.

We draw your attention to BRPD Circular No. 16 dated 18 July 2022 on the subject above.

2. In order to further clarify the instructions mentioned in the said Circular and to ensure its proper implementation, certain instructions are amended as follows:

a) Paragraph 3(6) shall be replaced as follows: 'The Bank shall ensure the ability to pay installments/existing liabilities of the rescheduled loan by examining the borrower's cash flow projection and audited financial report (where applicable).'

b) Paragraph 3(8) shall be replaced as follows: 'If it is demonstrated that the customer's ability to repay the loan is realistic/logical while properly complying with the aforementioned banking regulations, the relevant Bank shall reschedule the loan account. Otherwise, the Bank shall take all possible legal measures for recovery of dues and make appropriate provisions.'

c) Paragraph 3(9) shall be replaced as follows: 'The Bank's Credit Committee shall certify in writing regarding the appropriateness of loan rescheduling. The certification must include written reasons supporting the view that loan recovery will be facilitated by the rescheduling, along with the preservation of the Bank's long-term profitability and capital adequacy. Furthermore, the certification must explain the impact of rescheduling on the Bank's liquidity position and on the loan receivabilities of other customers.'

d) A new Paragraph 3(10) shall be inserted after Paragraph 3(9): 'Islamic Shariah-based Banks may carry out rescheduling and restructuring programs in accordance with the instructions mentioned in the Circular regarding their provided investments.'

e) Paragraph 4(1) shall be replaced as follows: 'Any classified loan shall be eligible for rescheduling up to 03 (three) times. However, in cases where the industry/business suffers damage due to reasons beyond the customer's control, the defaulting loan may be rescheduled for a 4th time with special consideration for the interest of loan recovery. If the loan is not recovered even after the 4th rescheduling, the Bank shall take legal measures for recovery of dues and make appropriate provisions. If a rescheduled loan is taken over by another Bank, the previous Bank's rescheduling sequence shall apply to the taken-over loan.'

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f) Paragraph 7(4) shall be replaced as follows: 'Any demand loan opened for the import of capital equipment or created through contract (where applicable) shall not be eligible for rescheduling without the prior approval of the Bank's Board of Directors/Executive Committee. Such loans must be recovered/adjusted immediately.'

g) Paragraph 8 shall be replaced as follows: 'Instructions regarding the classification, provision, and suspended interest of rescheduled loans: (1) In accordance with the provisions of Section 5(gg) of the Companies Act, 1991, a rescheduled loan shall not be considered a 'defaulting loan' and the customer shall not be considered a 'defaulting loan borrower' for the purpose of fulfilling the objective of Section 27(kk)(3) prior to the rescheduled loan becoming defaulted again. Notwithstanding this, the Bank may, at its own discretion, consider the rescheduled loan under any adverse classification and make necessary provisions. (2) During the inspection by the Bangladesh Bank's inspection team, any loan account after rescheduling shall be examined to verify if all cautionary measures regarding rescheduling have been complied with. The decision reached regarding classification shall be considered final. (3) The principal and interest after rescheduling shall be recoverable in equal installments on a monthly/quarterly basis. If six monthly or two quarterly installments remain unpaid, the rescheduled loan shall be directly classified as bad/doubtful. (4) Interest maintained as suspended interest against the rescheduled loan account and interest charged after rescheduling shall not be transferred to the Bank's income account without actual recovery. Furthermore, in the case of 3rd and 4th reschedulings of loans classified as bad/doubful, the provisions maintained against the rescheduled loan account shall not be transferred to the Bank's income account without actual recovery.'

h) Paragraph 9 shall be replaced as follows: 'Approval of Loan Rescheduling/Restructuring: (1) There is no requirement to obtain prior approval from the Bangladesh Bank for loan rescheduling/restructuring, and it shall be settled in accordance with the instructions mentioned in Paragraphs 9(2) and 9(3) based on the banker-customer relationship. (2) For loan rescheduling/restructuring, approval must be obtained from at least one level above the authority that approved the loan. The matter of rescheduling must be informed to the Bank's Chief Executive Office following proper procedure. However, if the Bank's Board of Directors approves any loan, the rescheduling/restructuring must be approved by the Bank's Board of Directors. In the case of any Bank registered outside Bangladesh, it must be approved by the Country Management Team or the responsible equivalent committee/team. (3) For loans other than Agriculture, Cottage, Micro, and Small loans, regardless of the level at which they were approved, the Bank's Board of Directors' approval is mandatory for 3rd and 4th reschedulings. However, in the case of any Bank registered outside Bangladesh, the instructions mentioned in Paragraph 9(2) shall be applicable.'

3. Furthermore, Paragraphs 6(3) and 7(7) of the Circular are hereby abolished.

4. These instructions are issued under the powers conferred by Section 49(1)(c) of the Companies Act, 1991, and these instructions shall come into force immediately.

Yours faithfully,

(Maksuda Begum) Director (BRPD) Phone: 9530252