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2024-12-04

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DFIM Circular Letter No. 37: Master Circular: Loan/Lease Classification and Provisioning

The document amends the provisioning rates for loans and leases under the Master Circular to encourage investment in cottage, micro, small, and medium enterprises (MSMEs). For MSME loans, the provision rate for 'Special Mention' accounts is reduced to 0.25%, and the rates for 'Sub-standard', 'Doubtful', and 'Loss' accounts are set at 5%, 20%, and 100% respectively, which are lower than the standard rates of 20%, 50%, and 100% applied to all other loans. These revised provisions apply immediately to all finance companies operating in Bangladesh.

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Bangladesh

Bangladesh Bank

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Bangladesh Bank (Central Bank of Bangladesh) Head Office Motijheel, Dhaka-1000 Bangladesh.

Ref No.: DFIM Circular Letter No. 37 To: Managing Director / Chief Executive Officer All Finance Companies operating in Bangladesh.

Dear Sir,

Subject: Master Circular: Loan/Lease Classification and Provisioning.

  1. Reference is invited to your attention to DFIM Circular No. 04, dated: 26 July 2021.

  2. Paragraph 3.5 (c) (4) of the Circular directs that provisions be made at the rate of 5% for 'Special Mention' loans, and Paragraph (d) directs that provisions be made at the rate of 20% for 'Sub-standard' loans, 50% for 'Doubtful' loans, and 100% for 'Bad and Loss' loans.

  3. Now, it has been decided to redefine the provision rate against loans granted by finance companies in the MSME sector, with the aim of encouraging investment in cottage, micro, small, and medium enterprises (MSMEs) and increasing the opportunity for businesses through increasing loans and investments in this sector.

  4. To this end, sub-paragraphs 3.5(c)(4) and 3.5(d) of the Circular shall be replaced as follows respectively:

3.5 (c) (4). Provisions shall be made at the rate of 5% on the balance obtained after deducting suspended interest from the outstanding balance of loans/leases classified as 'Special Mention'. However, in the case of MSME loans, the provision rate shall be 0.25%.

3.5 (d). Finance companies shall make provisions against classified loans/leases at the following rates:

In the case of MSME loans:

  1. Sub-standard: 5%
  2. Doubtful: 20%
  3. Bad and Loss: 100%

In the case of all other loans:

  1. Sub-standard: 20%

  2. Doubtful: 50%

  3. Bad and Loss: 100%

  4. Furthermore, all other directions of DFIM Circular No. 04, dated: 26 July 2021, shall remain unchanged.

  5. These directions are issued under the powers conferred by Section 41(2)(g) of the Finance Company Act, 2023, and shall come into force immediately.

Yours faithfully,

(Gautam Kumar Ghosh) Director (DFIM) Phone: 9530178.

Date: 04 December 2024 Department of Financial Institutions and Markets

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