BRPD Circular No. 16: Collateral Valuation Firm/Company Enlistment Policy

Bangladesh Bank Chief Executive Office Motijheel, Dhaka-1000 Bangladesh Ref No: BRPD-Circular-16 Banking Regulation and Policy Department 28 November 2023

BRPD Circular No. 16 Date: ------------------- 13 Agrahayan 1430

Managing Director / Chief Executive Officer All Scheduled Banks and Collateral Valuation Institutions operating in Bangladesh

Dear Sir,

Policy on Enlistment of Collateral Valuation Institution or Company.

Section 29C has been added through the Bank Companies (Amendment) Act, 2023. To fulfill the purpose of the said section, any eligible collateral valuation institution must be enlisted with Bangladesh Bank to value the collateral (hereinafter referred to as 'security') provided against a loan (in the case of Islamic Shariah-based banks, investment) taken or to be taken by a borrower of any bank. Generally, banks accept movable properties such as land and buildings, and immovable properties such as machinery, easily marketable goods, etc., as security from borrowers to mitigate credit risk. For proper management of loans in the banking sector, maintaining loan discipline, recovering bad loans, liquidation, off-balance sheet asset recognition, correct calculation of provisions held against classified loans, and loan rescheduling, accurate and reliable valuation of the security taken against the loan is extremely necessary. To ensure accurate and reliable valuation, it is essential to enlist and publish the list of eligible collateral valuation institutions by defining minimum qualifications and suitability. This policy has been formulated to enlist eligible collateral valuation institutions for valuing collateral (hereinafter referred to as 'security') provided against a loan taken or to be taken by a borrower of any bank through a specific, transparent, and acceptable process by Bangladesh Bank.

2. Minimum Qualification/Ineligibility of Collateral Valuation Institution

2.1. To be eligible for enlistment, the collateral valuation institution must be a member of at least one of the following institutions/associations: (a) Bangladesh Society of Valuation Companies, Firms and Individual Consultants (BSVCIFIC); (b) Bangladesh Insurance Surveyors Association; or (c) Any other recognized professional organization considered equivalent by Bangladesh Bank.

2.2. In addition to members of the organizations mentioned in clause 2.1, members of the Institute of Chartered Accountants of Bangladesh and the Institute of Cost and Management Accountants of Bangladesh may apply for enlistment subject to fulfilling the criteria mentioned in this circular.

2.3. The collateral valuation institution must have at least 3 years of practical experience in security/valuation work at any bank/financial institution/government institution/insurance company/multinational company.

2.4. The collateral valuation institution must be registered with the relevant authority as a sole proprietorship, partnership, or limited company under the existing law for enlistment.

2.5. The collateral valuation institution must have skilled and experienced personnel (accountants, civil engineers, mechanical engineers, diploma engineers, etc., as applicable) and trained surveyors.

2.6. The institution must have necessary logistical facilities along with modern machinery/equipment for valuation work (e.g., GPS, Total Station, etc.).

2.7. The institution must have a registered office.

2.8. The institution must have a valid trade license.

2.9. The institution must have a Business Identification Number (BIN) and Tax Identification Number (TIN).

2.10. The institution, the persons concerned with the ownership of the institution, directors, Managing Director, and Chief Executive Officer must have a satisfactory CIB report. If the said institution or the persons concerned with the institution are identified as bad debt under Section 5(gg) of the Bank Companies Act, 1991, the institution will not be eligible for enlistment.

2.11. The institution must have up-to-date audited financial statements where applicable.

2.12. The persons concerned with the ownership of the institution, directors, Managing Director/Chief Executive, and Chief Valuer/Surveyor must not have been convicted or fined for any financial irregularity or criminal offense under court order. However, if fined, the institution may apply for enlistment after 3 years have passed since the punishment was served.

3. Additional Qualifications

There are several additional qualifications that will be considered for priority in enlistment as a collateral valuation institution. However, an institution may apply for enlistment even without these qualifications. For example:

3.1. The institution's ability to adopt new technology in the relevant work; 3.2. Inclusion of professionals with degrees such as MSc in Civil Engineering (MScCE), MSc in Mechanical Engineering (MScME), MSc in Electrical Engineering (MScEE), MSc in Architecture (MScA), MSc in Environmental Engineering (MScEnvE), MSc in Urban Planning (MScUP), MSc in Structural Engineering (MScSE), Professional Geomatics Engineer (PGE), etc., among permanent staff; 3.3. Being enlisted as a collateral valuation institution in at least 3 banks or financial institutions; 3.4. The Chief Valurer/Surveyor having 5 years or more experience in the relevant work.

4. Enlistment Process

The enlistment process by Bangladesh Bank will begin upon receipt of applications from collateral valuation institutions. Bangladesh Bank will publish an updated list of eligible collateral valuation institutions annually following the evaluation process. The validity period for enlistment of a collateral valuation institution will be a maximum of 3 years. The collateral valuation institution must apply for re-enlistment every 3 years from the date of enlistment with Bangladesh Bank (6 months before the expiry of the period). However, it is noted that if an institution fails to comply with the criteria/instructions provided during enlistment by Bangladesh Bank, or for any reasonable cause, the institution may be de-enlisted at any time before the 3-year period. For the first-time enlistment of collateral valuation institutions, a notice will be published on the website of Bangladesh Bank as well as in 2 national newspapers (one in Bengali and one in English).

5. Application Process

5.1. The application for enlistment as a collateral valuation institution must be submitted to the Director (BRPD), Banking Regulation and Policy Department, Bangladesh Bank, Chief Executive Office, Dhaka.

5.2. The application must be submitted to Bangladesh Bank between the 1st and 15th of the last month of each half-year (June and December). Applications submitted after this period will not be considered.

5.3. The application evaluation fee of 5,000/- Taka must be deposited via Pay Order/Bank Draft (refundable) issued by the Executive Director, Bangladesh Bank, Motijheel Office.

6. Application Form

The application must be submitted with the prescribed form containing information (along with supporting documents) (see Annexure-A and Annexure-B).

7. Documents/Records to be submitted with the Application

(a) Copy of the valid trade license; (b) Copy of the proof of submission of the latest tax return and copy of the e-TIN certificate; (c) Bank Solvency Certificate; (d) In the case of a partnership institution, a notarized copy of the partnership deed and copy of the registration number; (e) In the case of a Private Ltd/Public Ltd company, a copy of the Memorandum and Articles of Association; (f) A declaration signed by the relevant institution (bank/financial institution/government institution/insurance company/multinational company) confirming experience in working as a collateral valuer/surveyor; (g) If enlisted in any bank/financial institution, a copy of the enlistment proof/contract along with the name of the institution; (h) Copies of certificates of educational qualifications and experience of engineers/surveyors/staff working in the institution; (i) Copies of national ID cards of the directors/owners/partners and Chief Executive Officers of the institution; (j) Copy of the certificate regarding membership of the relevant association or proof of membership; and (k) Copy of the last completed collateral/asset valuation report by the institution.

8. Evaluation Process

8.1. The evaluation method prescribed by Bangladesh Bank will be used in evaluating the application. Subject to having the minimum qualification for enlistment, collateral valuation institutions will be considered for the enlistment evaluation process;

8.2. Based on the scores obtained by the collateral valuation institutions, the institutions will be classified into Group 'A' and Group 'B' respectively;

8.3. Additional information (along with necessary documents) as per 'Annexure-C' must be sent with the application for evaluation;

8.4. If Bangladesh Bank deems it necessary, it may instruct the relevant institution to submit supporting documents for verification of information;

8.5. The inspection team of Bangladesh Bank may inspect the collateral valuation institutions on-site at any time;

8.6. Before enlistment by Bangladesh Bank, all scheduled banks must send information of collateral valuation institutions that have been enlisted or have conducted collateral valuation work by such banks to Bangladesh Bank as per 'Annexure-D';

8.7. Bangladesh Bank will retain the sole authority for the enlistment of eligible institutions based on the scores obtained through the prescribed evaluation method and with the approval of the competent authority. It is noted that if a collateral valuation institution is not considered eligible for enlistment, it may re-apply for enlistment through the process mentioned in this policy subject to fulfilling the specified qualifications later, which will be considered during the next enlistment.

9. Publication of List

After the completion of the proper evaluation process and with the approval of the competent authority, the list of collateral valuation institutions will be published on the website of Bangladesh Bank through a circular letter.

10. Reporting

The enlisted institution must submit a report to the Banking Regulation and Policy Department, Bangladesh Bank, Chief Executive Office, Dhaka, on a quarterly basis (by January 15 of the following year) in the prescribed reporting format (Annexure-E).

11. Performance Evaluation

Based on the information sent by the institution, quarterly reports, inspections, and other means, Bangladesh Bank will re-evaluate the enlisted collateral valuation institution on a quarterly basis.

12. Reporting by Banks

To ensure the accuracy of information regarding the activities of collateral valuation institutions for the purpose of performance evaluation, all scheduled banks must send information as per Annexure-F to the Banking Regulation and Policy Department of Bangladesh Bank on a quarterly basis.

13. De-enlistment

13.1. After enlistment, based on the evaluation by Bangladesh Bank, the list of collateral valuation institutions will be updated, and if there is a reasonable cause, an institution may be de-enlisted from the list;

13.2. If the score obtained in the quarterly performance re-evaluation of enlisted collateral valuation institutions falls below a specified limit, or if false or untrue information is provided, information is concealed, fraud is proven, undervaluation or overvaluation is proven, the institution is convicted or banned by the court, contact is established with the borrower or recommendations are accepted, a complaint is filed by any bank and proven, or there is a violation of any instruction or non-compliance with the criteria of this policy, the valuation institution will be de-enlisted by Bangladesh Bank;

13.3. An institution aggrieved by de-enlistment may appeal to the Executive Director, Banking Regulation and Policy Department, Bangladesh Bank, Chief Executive Office, Dhaka, within 14 days. Until the institution is re-enlisted after de-enlistment, it will not be considered eligible for collateral valuation of bank borrowers. In this case, the relevant bank may engage any other listed valuation institution to conduct the current valuation process;

13.4. If an institution is de-enlisted, it will remain de-enlisted for a minimum of 1 year to a maximum of 3 years. After the de-enlistment period expires, it may apply for new enlistment normally. The time limit will be specified in the circular letter issued regarding de-enlistment;

13.5. The decision of Bangladesh Bank regarding the de-enlistment of a collateral valuation institution will be considered final.

14. Inspection

Representatives of Bangladesh Bank may conduct inspection activities of the collateral valuation institution at any stage of enlistment or after enlistment by giving notice or without any notice if it is in the public interest. During the inspection, the relevant institution will be obliged to provide any information/documents for verification. Along with the application for enlistment, the relevant institution must submit a declaration agreeing to these conditions (see Annexure-I).

15. General Instructions:

15.1. For loan approval, limit restriction, or renewal up to 1 (one) crore Taka, the bank may conduct the valuation of the security/property/machinery taken/being taken against the loan through its own management. However, in this case, the bank may also have the encumbered/encumbered property valued by a listed collateral valuation institution of Bangladesh Bank;

15.2. For loan approval, restriction, or renewal of 1 (one) crore Taka and above, the valuation of the security/collateral taken/being taken against the loan, property, machinery, etc., must be conducted through a listed collateral valuation institution of Bangladesh Bank. To ensure that the valuation has been properly completed by the collateral valuation institution, the bank may also conduct the valuation of the said collateral through its own management along with the listed collateral valuation institution;

15.3. For loan approval or restriction of 100 (one hundred) crore Taka or above, or renewal where applicable, the taken/being taken security (property, goods, machinery, etc.) must be valued separately by at least two collateral valuation institutions;

15.4. In the case of valuation by multiple valuation institutions or by the bank's own management along with the valuation institution, the valuation that is more favorable to the bank must be adopted. However, if the difference between the two valuations exceeds 20%, the bank may ask the valuation institution for an explanation;

15.5. In other areas where professional institutions or valuation institutions have been instructed to conduct valuation through professional institutions or valuation institutions, including non-banking assets, the valuation must be conducted by the listed institution of Bangladesh Bank;

15.6. A listed collateral valuation institution of Bangladesh Bank cannot include any other collateral valuation institution (listed or unlisted) in the collateral valuation work of any bank's loan. However, if necessary, a person with special skills or technical expertise may be appointed as an advisor/counsel to properly complete the said work.

16. Other Instructions

16.1. The maximum age limit for the Chief Valuer at the time of submitting the enlistment application will be 75 years;

16.2. In the case of re-valuation of any collateral by the bank, any suitable listed institution of Bangladesh Bank must be engaged;

16.3. If the name, address, Managing Director/Chief Executive Officer (however designated), or Chief Valurer/Surveyor of the institution changes, the information of the change must be informed to Bangladesh Bank within 30 days of the change;

16.4. If the membership of any collateral valuation institution in the relevant institution/association is revoked/cancelled, it must be immediately informed in writing to Bangladesh Bank;

16.5. For the valuation of collateral provided against loans of 100 (one hundred) crore Taka and above, at least one institution among the collateral valuation institutions must compulsorily be classified in Group 'A' of the list;

16.6. If the classified loan ratio of the bank was 10 percent or above in the previous quarter when the collateral valuation was to be conducted, the collateral valuation work for loans of 50 (fifty) crore Taka and above of the said bank must be compulsorily conducted by a listed collateral valuation institution classified in Group 'A';

16.7. The instructions issued from time to time by Bangladesh Bank regarding the enlistment and de-enlistment of collateral valuation institutions will be considered final.

17. To ensure compliance with and implementation of the aforementioned policy, banks must inform all their relevant collateral valuation institutions about the policy.

18. Bangladesh Bank reserves the right to make any additions, deletions, and modifications to the instructions and criteria mentioned in this policy from time to time.

19. These instructions are issued under the powers conferred by Section 29C of the Bank Companies Act, 1991 (added through the Bank Companies (Amendment) Act 2023).

20. These instructions will come into force immediately.

Yours faithfully, (Mohammad Shahriar Siddique) Director (BRPD) Phone: 9530252

Annexure-A Application for Enlistment of Collateral Valuation Institution Ref: Date:

Director (BRPD) Banking Regulation and Policy Department Bangladesh Bank, Chief Executive Office, Dhaka

Dear Sir,

Subject: Application for enlistment of ........................ (Name of Institution) as a Collateral Valuation Institution.

In accordance with BRPD Circular No.... dated..........., the requested information in the prescribed form is enclosed herewith. I hereby apply for the enlistment of ........................ (Name of Institution) as a Collateral Valuation Institution for the valuation of collateral/property provided by banks against loans.

I declare that all the information sent is correct and true. If any error/inconsistency/untruth is found in the submitted information, I and my institution will be legally liable.

Signature: Name: Designation: (Managing Director/Chief Executive/Owner) Seal:

Annexure-B Required Information

S.No. Description 01. Name of the Institution (Bengali and English): 02. Chief Executive/Managing Director (or equivalent, however designated) 02. Address: 03. Phone Number: 04. Mobile: 05. Email: 06. Trade License Number, Date, and Validity: 07. e-TIN Number: 09. Year of Latest Audited Financial Statement (Online/Offline): 10. Bank and Date of Bank Solvency Certificate Issuer: 11. Name and Designation of Chief Valuer (if multiple, details of all): 12. Type of Institution (Public, Private Limited, Partnership, Sole Proprietorship): 14. Number of Branches/Units: 15. Information on experience working as Valuer/Surveyor (Years and Number): 16. Information regarding being blacklisted in any bank or financial institution: (Yes/No, name of bank or financial institution if applicable) 17. Information on Staff (Name, Designation, Qualification, Experience): 1. 2. 3. ... 18. Identified as bad debt by any bank or financial institution? (Yes/No) 19. Other Information (if any):

Annexure-C Additional Information Related to Evaluation Process (To be filled by Collateral Valuation Institution)

1. Experience in relevant work (Years)
2. Total number of permanent staff
3. Total number of technically skilled personnel
4. Current association with scheduled banks in collateral/asset valuation work (Number and name of banks)
5. Current association with financial institutions in collateral/asset valuation work (Number and name of financial institutions)
6. Association with other institutions in collateral/asset valuation work besides banks and financial institutions (Number and name of institutions)
7. Number of Surveyors
8. Experience of Chief Executive in work (Years)
9. Experience of Chief Valurer/Surveyor in relevant work
10. Ability to conduct digital surveys (Yes/No) (e.g., machinery, software - attach proof)
11. Number of regional offices
12. Number of qualified surveyors compared to total staff (having apprenticeship courses and other relevant academic certificates)
13. Information if de-enlisted by any bank (Number and name)
14. Information on Professional Members (Specialized qualifications, number, and type)
15. Application of International Valuation Standards (IVS) (Yes/No)
16. Active Website (Yes/No) (Website address if applicable)
17. Business Continuity Plan (Yes/No) (Attach company's BCP if applicable)
18. Identification of Future Threats and Steps Taken (Maximum 3)

Annexure-D Additional Information for Evaluation Process (To be filled by Banks)

Name of Bank:

S.No. Information on Collateral Valuation Institution

1. Reputation/Performance of the said institution in relevant work compared to similar institutions
2. Reporting Standards
3. Accuracy of Valuation Work
4. Timely Completion of Work
5. Clarified Reports and Their Explanation
6. Involvement in Unethical Activities
7. Application of International Valuation Standards (IVS)
8. Reputation of the Institution's Valuer
9. Has the institution been de-enlisted by any bank? (Yes/No)
10. Has unethical valuation (overvaluation/undervaluation) occurred on behalf of the customer or bank? (Yes/No)
11. Experience of the institution in relevant work (Years)
12. Experience of the Chief Valuer of the institution (Years)

Annexure-E Quarterly Reporting Format (For Collateral Valuation Institutions)

Name of Institution: Year:

S.No. Information

1. Number of customers whose collateral was valued by the collateral valuation institution in the reporting year
2. Name of Valued Borrower and Relevant Bank and Branch Name 1. 2. 3.
3. Type, Amount, and Estimated Value of Assets Specified for Valuation and Information on Immediate Previous Valuation (if any) 1. 2. 3.
4. Reasons for Difference Between Current Valuation and Immediate Previous Valuation (if any)
5. Names, Designations, Qualifications, and Experience of Staff Involved in Conducting Valuation Work
6. Time Taken to Conduct Valuation Work (Days)
7. Number of Contracts Signed with Bank/Banks

Managing Director/Chief Executive (Signature and Seal of Institution) Date:

Annexure-F Quarterly Reporting Format (For Banks)

Information on Institutions that have Valued Collateral for the Bank: Year:

S.No. Name of Collateral Valuation Institution:

1. Collateral Providing Borrower
2. Branch Name
3. Amount of Loan/Investment
4. Value Received for Provided Collateral
5. Value Received in Previous Valuation of Collateral
6. Value Received through Bank's Own Management
7. Was Valuation Completed on Time? (Yes/No)
8. Names and Designations, Qualifications, and Experience of Staff Involved in Conducting Valuation Work
9. Collateral Valuation Method (According to International Valuation Standards)
10. Use of Technology (Yes/No)
11. Bank's Observation on the Institution
12. Collateral Providing Borrower
13. Branch Name
14. Amount of Loan/Investment
15. Value Received for Provided Collateral
16. Value Received in Previous Valuation of Collateral
17. Value Received through Bank's Own Management
18. Was Valuation Completed on Time? (Yes/No)
19. Names and Designations, Qualifications, and Experience of Staff Involved in Conducting Valuation Work
20. Collateral Valuation Method (According to International Valuation Standards)
21. Use of Technology (Yes/No)
22. Bank's Observation on the Institution

Annexure-I Sample Declaration Provided by Collateral Valuation Institution:

Declaration I hereby declare that, to fulfill the relevant sections of the Bank Companies Act, 1991, before and at any time after enlistment as a Collateral Valuation Institution for valuing collateral provided against loans by banks, my institution ............ will be obliged to cooperate fully during any type of inspection activity conducted by Bangladesh Bank without prior notice.

I further declare that, during the said inspection, we will be obliged to provide assistance to the inspector/inspection team and provide any information and documents upon request for verification during the inspection.

Managing Director/Chief Executive (Signature and Seal of Institution) Date: