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2022-12-22

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BRPD Circular Letter No. 53: Transfer of interest to income account and maintaining provision against loans

The Bangladesh Bank mandates that interest on subsidized loans accrued in 2022 be transferred to income accounts following a risk assessment, while prohibiting such transfers for rescheduled, restructured, or one-time exit facility loans unless paid in cash. Banks are required to maintain an additional 2% general provision against these loans (1% for SMEs), which must be held in a specific suspense account until further instructions. If these loans are fully repaid in cash or reclassified as impaired requiring specific provisions, banks may transfer the previously held additional general provisions to appropriate accounts at their discretion.

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Bangladesh Bank Chief Executive Office Motijheel, Dhaka-1000 Bangladesh. Ref No.: BRPD Circular Letter No. 53 Banking Regulation and Policy Department 22 December 2022 BRPD Circular Letter No. 53 Date: ----------------- 07 Poush 1429

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

Dear Sir,

Reference is made to your attention regarding BRPD Circular Letter No. 14/2022 and BRPD Circular Letter No. 51/2022 concerning the transfer of interest on subsidized loans to the income account and maintaining provisions against said loans.

Reference is drawn to your attention to BRPD Circular Letter No. 14, dated: 22 June 2022 and BRPD Circular Letter No. 51, dated: 18 December 2022 issued regarding loan classification.

  1. It was mentioned in paragraph 9 of the aforementioned circulars that further necessary instructions would be provided regarding the transfer of interest on subsidized loans to the income account and maintaining provisions against said loans under BRPD Circular Letter No. 14/2022.

  2. Now, in order to keep the financial basis of banks strong in the future and to reduce non-performing loans, the following instructions must be followed regarding the transfer of interest on subsidized loans to the income account and maintaining provisions against said loans under BRPD Circular Letter No. 14/2022 and BRPD Circular Letter No. 51/2022 for the year 2022:

a) The potential repayment risk of subsidized loans will be assessed, and the interest accrued in 2022 will be transferred to the income account in accordance with existing regulations.

b) Interest accrued against rescheduled loans, loans restructured under BRPD Circular Letter No. 04/2015, or loans benefiting from rescheduling/one-time exit facilities under BRPD Circular Letter No. 05/2019 will not be transferred to the income account unless paid in cash.

c) An additional 2% general provision must be maintained against subsidized loans. However, an additional 1% general provision may be maintained against subsidized loans in the CMS SME sector. The said additional provision must be transferred to the 'Suspense Account-IRAC-19' head, and until further instructions are issued by Bangladesh Bank, the provisions kept in the 'Suspense Account-IRAC-19' head cannot be transferred to any other head.

  1. If any loan benefiting from subsidized facilities under BRPD Circular Letter No. 17/2020, 19/2021, 14/2022, and BRPD Circular Letter No. 51/2022 is fully repaid through cash payment, the previously maintained additional general provision may be transferred to the income account at the bank's own discretion. Furthermore, if the said subsidized loans are reclassified as impaired and necessary specific provisions are maintained against them, the previously maintained additional general provision may be transferred to the appropriate head by the bank's own decision.

  2. Necessary information regarding subsidized loans under BRPD Circular Letter No. 14/2022 and BRPD Circular Letter No. 51/2022 (such as borrower's name, loan position, accrued interest, income account, interest transferred to interest suspense account, amount of additional provision, etc.) must be preserved in the relevant branch and the relevant department of the Chief Executive Office.

  3. Islamic Shariah-based banks will take necessary arrangements in the same manner by following the above policy in the field of investments made by them.

  4. Other instructions mentioned in BRPD Circular Letter No. 14/2022 will remain unchanged.

  5. These instructions have been issued under the powers conferred by Section 45 of the Companies Act, 1994.

  6. These instructions will come into force immediately.

Yours faithfully,

(Md. Ali Akbar Farazi) Director (BRPD) Phone: 9530095

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