BRPD Circular Letter No. 56: Loan Classification

BRPD Circular Letter No. 56
Banking Regulation and Policy Department
Bangladesh Bank
Head Office
Dhaka.
10 December 2020
BRPD Circular Letter No.- 56 Date: ------------------- 25 Agrahayan 1427 To, Managing Director/Chief Executive Officer All Scheduled Banks operating in Bangladesh.

Dear Sir,

Regarding Loan Classification.

2. We draw your attention to BRPD Circular No.-17 dated 28 September 2020 on the subject cited above.

3. Considering the significant impact of COVID-19 in the country, BRPD Circular-17/2020 was issued to provide instructions on loan classification, stating that loans whose classification was as of 01 January 2020 will not be classified worse than that until 31 December 2020. However, if the classification of any loan improves, it shall be classified according to the relevant rules. In addition to providing instructions on repayment/restructuring of loans/investments and installments through the said circular, instructions were also provided under Section No.-04 as follows:

"Through this circular, necessary instructions will be provided later regarding the transfer of interest charged on loans/investments benefiting from the moratorium for installment payment/restructuring to income accounts and the maintenance of provisions against loans."

3. Now, in order to maintain the financial foundation of banks in the future and to prevent the growth of non-performing loans, the following instructions regarding the transfer of interest/profit charged on loans/investments benefiting from the moratorium for installment payment/restructuring to income accounts and the maintenance of provisions against loans/investments through the aforementioned circular must be followed:

a) For loans/investments that are in an unclassified status due to benefiting from the moratorium for installment payment/restructuring through BRPD Circular-17/2020, regarding the transfer of interest/profit charged against such loans/investments to income accounts from 01 January 2020 to 31 December 2020, except for cash collection, decisions must be taken after assessing the potential recovery risk of the loans/investments in the following ways:

1. For loans/investments (borrower-based) of 10.00 (ten) crore Taka and above, regarding the transfer of interest/profit charged against them to income accounts, the decision must be approved by the Management Committee along with the recommendation of the Audit Committee (mentioning justification).

2. For loans/investments (borrower-based) of 5.00 (five) crore Taka and above but below 10.00 (ten) crore Taka, regarding the transfer of interest/profit charged against them to income accounts, the decision must be approved by the Chief Executive Officer/Managing Director of the bank along with the recommendation of the Branch Manager.

3. For loans/investments below 5.00 (five) crore Taka, regarding the transfer of interest/profit charged against them to income accounts, the decision must be approved by the controlling authority along with the recommendation of the Branch Manager.

Considering the aforementioned matters, if interest charged against any loan/investment is not transferred to the income account, it must be transferred to the Interest Suspense account.

b) Regarding the maintenance of specific provisions against loans/investments, provisions must be maintained properly after calculating the mandatory provisions according to the rules of classification and provisioning of loans/investments.

c) Regarding the maintenance of general provisions against loans/investments, provisions must be maintained properly after calculating the mandatory provisions according to the rules of classification and provisioning of loans/investments. Additionally, in the finalization of accounts as of 31 December 2020, an additional 1% general provision must be maintained against all non-classified loans/investments including non-performing loans/investments, and the said provision must be shown separately under other liabilities in the bank's balance sheet as 'COVID-19 Additional Provision'. Until further instructions are given by Bangladesh Bank, the provision for the 'COVID-19 Additional Provision' category shall not be transferred to any other category.

-02- d) Detailed information regarding the overall assessment and approval of the calculation and transfer of provisions against loans/investments must be maintained in the relevant department/branch so that the inspection team of Bangladesh Bank can verify the relevant information in the shortest possible time.

4. Other instructions mentioned in BRPD Circular-17/2020 will remain unchanged.

5. These instructions are issued under the powers granted in Section 45 of the Companies Act, 1991.

These instructions will take effect immediately.

Yours faithfully,
(Md. Nazrul Islam)
Deputy General Manager
Phone: 9530252