DFIM Circular Letter No. 33: Regarding Loan Classification, Transfer of Interest/Profit to Income Account and Maintaining Provision Against Loans/Investments

Department of Financial Institutions and Markets Bangladesh Bank Head Office Dhaka. Ref No.: DFIM Circular Letter No. 33 To All Chief Executive/Managing Directors All Financial Institutions Operating in Bangladesh.

Dear Sir,

Regarding Loan/Lease/Investment Classification, Transfer of Accrued Interest/Profit to Income Account, and Maintenance of Provision.

Reference is drawn to your attention to DFIM Circular Letter No. 28, dated 01 September 2021, on the above-mentioned subject.

2. The instructions provided in paragraphs 1 and 3 of the aforementioned Circular Letter regarding the classification of loans/leases/investments based on 31/12/2021 and the transfer of accrued interest/profit against loans/leases/investments to the income account are hereby replaced as follows:

a) Loans shall not be classified as non-performing based on 31/12/2021 if at least 25% (twenty-five percent) of the due installments against loans/leases/investments from 01 January 2021 to the last working day of December 2021 are paid by the end of December 2021. In this regard, the remaining balance of the due installments until 31/12/2021 shall be paid within 1 (one) year after the maturity of the existing term. Additionally, other installments must be paid on time;

b) The interest/profit accrued in 2021 against loans/leases/investments paid at the rate and time mentioned in paragraph 2(a) above may be transferred to the income account considering future recovery risk;

c) If a borrower fails to pay at least 25% (twenty-five percent) of the due installments by the end of December 2021, the prevailing regulations shall remain in force for the relevant loan, and the relevant loan/lease/investment shall be classified accordingly and reported to CIB in the CL statement based on 31 December 2021.

3. Under this Circular Letter, financial institutions must maintain an additional 2% provision over the general provision maintained in accordance with the existing policy for loans/leases/investments benefiting from this facility. This shall be shown under the heading "Special Provision" in the balance sheet based on 31 December 2021. The said maintained special provision shall not be transferred to the income account or adjusted against the maintained provision without prior approval from Bangladesh Bank.

4. It must be ensured that the necessary information regarding the aforementioned benefiting loans/leases/investments (name of the borrower, loan position, accrued interest/profit, transfer of interest/profit to income account and suspended account, amount of additional 2% maintained provision, etc.) is maintained at the relevant branch and Head Office.

5. With special consideration and obtaining permission from Bangladesh Bank, the interest/profit accrued against rescheduled/restructured loans/leases/investments shall not be transferred to the income account except through cash recovery.

6. This facility regarding the classification of loans/leases/investments and the transfer of accrued interest/profit to the income account shall apply only for the finalization of accounts based on 31/12/2021.

7. Furthermore, other instructions of DFIM Circular Letter No. 28, dated 01 September 2021, shall remain unchanged.

8. These instructions are issued under the powers conferred by Section 18(c) of the Financial Institutions Act 1993, which shall come into force immediately.

Yours faithfully,

(Md. Zulkar Nayeem) General Manager Phone: 9530178 4 Poush 1428 Date: 19 December 2021