DFIM Circular No. 03: Provisioning Against Investments in Share & Equity, Bond & Debenture, Mutual Fund & Commercial Paper

Bangladesh Bank (Central Bank of Bangladesh) Head Office Financial Institutions and Markets Department Ref No: DFIM-Circular-03 DFIM Circular No. 03

To, All Chief Executive/Managing Directors Finance Companies Operating in Bangladesh

Dear Sir,

Subject: Institutional Provisioning Against Investments in Share & Equity, Bond & Debenture, Mutual Fund and Commercial Paper.

Reference is drawn to your attention to DFIM Circular No. 02, dated 31 January 2012, DFIM Circular No. 05, dated 11 May 2015, and DFIM Circular Letter No. 02, dated 27 February 2020.

To ensure a true and fair reflection of the financial position of finance companies in the reports prepared by them, it is necessary to make appropriate institutional (provision) accounting for investments in shares and equity, bonds and debentures, mutual funds and commercial paper, as well as equity investments in their subsidiaries/affiliated institutions, where applicable, alongside loans/leases. In this context, the following guidelines are issued regarding institutional provisioning against risks related to the aforementioned investments:

1. Institutional Provisioning Against Investments in Listed Securities: In the case of investments in shares and equity, bonds and debentures of listed institutions, if the market value of the respective securities is less than the purchase price (i.e., Cost), the difference between the two is identified as 'investment loss', and an equivalent amount of institutional provision must be made as of the base date. In this regard, institutional provision may be made separately for each fund (share and equity, bond and debenture) based on the average/weighted average cost.

2. Institutional Provisioning Against Investments in Unlisted Securities: The following policies shall apply regarding institutional provisioning against investments in equity shares, preference shares, and bonds and debentures of institutions not listed in the capital market:

2.1. In the case of investments in equity shares (including subsidiaries and affiliates) of unlisted institutions, the value of the said equity shares (excluding preference shares) as of the base date shall be determined based on the Net Asset Value (i.e., NAV) according to their latest audited financial statements. In this method, if the determined value of the shares is less than the purchase price (i.e., Cost) of the said shares, the difference between the two shall be considered 'investment loss' and an equivalent amount of institutional provision must be made.

Furthermore, if a finance company invests in the equity shares of any institution that does not have audited financial statements for the three years preceding the base date continuously, or if the invested company has no liabilities, or has not provided any profit continuously for three years, an equivalent amount of institutional provision must be made for the investment in the said institution.

2.2. In the case of investments in non-convertible preference shares, bonds, and debentures of unlisted institutions, if the interest/dividend (cash) payable by the said institution at the end of any accounting period is not received by the finance company, institutional provision shall be made on the investment value (i.e., Cost) shown in the investment account as follows after the non-payment of interest/dividend (cash):

a. 25% at the end of the first accounting period; b. 50% at the end of the second accounting period; Date: 23 Asharh 1432 07 July 2025 01

c. 100% at the end of the third accounting period; and d. In the case of short-term bonds/debentures, if the entire principal amount is not recovered upon maturity, 100% institutional provision must be made from the accounting period immediately following maturity.

2.3. Regarding the accruals of interest (accrued interest on investment which is not received) against investments mentioned in paragraph 2.2, if they remain unadjusted for a period of 06 (six) months or more but less than 01 (one) year from the date of creation, they shall be classified as doubtful and 50% institutional provision must be made against such accruals. If they remain unadjusted for a period of 01 (one) year or more, they shall be classified as bad/loss and 100% institutional provision must be made against all such accruals.

3. Dividends receivable against the aforementioned listed or unlisted securities investments shall not be transferred to the income account unless received in cash.

4. In addition, regarding institutional provisioning against investments in mutual funds, the guidelines issued through DFIM Circular No. 05 dated 11 May 2015 of this department, and "Guidelines on Commercial Paper for Financial Institutions" issued through DFIM Circular Letter No. 02 dated 27 February 2020 regarding institutional provisioning against investments in commercial paper, or according to the decisions of the said circulars/guidelines from time to time, compliance with the relevant instructions regarding institutional provisioning against investments in respective securities must be ensured.

5. In light of the above instructions, finance companies shall make appropriate institutional provisioning against investments in shares and equity, bonds and debentures, mutual funds, and commercial paper on a quarterly basis (March, June, September, and December).

6. Finance companies shall send the details regarding institutional provisioning against investments in respective securities (hardcopy and softcopy) to the Financial Institutions and Markets Department of Bangladesh Bank within 30 (thirty) days following the determination of the quarterly results, attached with the template (Annex-A). Additionally, detailed reflection of provisions against investments in respective securities must be ensured in the daily financial statements.

7. These instructions are issued under the powers conferred by Section 41(2)(d) of the Finance Companies Act, 2023 (Act No. 59 of 2023), which shall come into effect from the September/2025 quarter.

Yours faithfully,

Enclosure: 03 (Three) Pages.

(G. T. M. Ghosh) Director (DFIM) Phone: 9530178 02

Annex-A Page 1 of 3 Template for Institutional Provisioning Against Investments in Listed and Unlisted Securities

1. Listed Securities

Sl. No.	Name of the Security	No. of Shares	Purchase Price (i.e., Cost)	Market Value (i.e., Market Price)	Market Value vs. Purchase Price	Investment Loss	Provision %	Provision Amount
1	2	3	4=2*3	5	6=2*5	7=4-6	8	9=8-7
1
2
...

2. Unlisted/Non-Listed Securities

Sl. No.	Name of the Security	No. of Shares	Purchase Price (i.e., Cost)	Market Value (i.e., Market Price)	Market Value vs. Purchase Price	Investment Loss	Provision %	Provision Amount
1	2	3	4=2*3	5	6=2*5	7=4-6	8	9=8-7
1
2
...

3. Unlisted-Listed Security Investment

Sl. No.	Name of the Security	Purchase Price (i.e., Cost)	Net Asset Value (NAV) (i.e., NAV)	Market Value vs. Purchase Price	Investment Loss	Provision %	Provision Amount
1	2	3	4=2*3	5	6=2*5	7	8=270.85
1
2
...

*Note: Market Value vs. Purchase Price: If 6>=8, then 6<8.

Annex-A Page 2 of 3 Template for Institutional Provisioning Against Investments in Unlisted Securities

4. Listed Securities

Sl. No.	Name of the Security	No. of Shares	Purchase Price (i.e., Cost)	Market Value (i.e., Market Price)	Market Value vs. Purchase Price	Investment Loss	Provision %	Provision Amount
1	2	3	4=2*3	5	6=2*5	7=4-6	8	9=8-7
1
2
...

5. Unlisted-Listed Security Investment

Sl. No.	Name of the Security	Purchase Price (i.e., Cost)	Net Asset Value (NAV) (i.e., NAV)	Market Value vs. Purchase Price	Investment Loss	Provision %	Provision Amount
1	2	3	4=2*3	5	6=250.85	7	8
1
2
...

6. Mutual Fund Investment

Sl. No.	Name of the Mutual Fund	Investment Amount	Investment Value vs. Purchase Price	Investment Loss	Provision %	Provision Amount
1	2	3	4	5	6	7
1
2
...

*Note: Investment Value vs. Purchase Price: If 6>=8, then 6<8.

Annex-A Page 3 of 3

7. Unlisted-Listed Security Investment

Sl. No.	Name of the Security	Purchase Price (i.e., Cost)	Market Value vs. Purchase Price	Investment Loss	Provision %	Provision Amount
1	2	3	4=2*25%/50%/100%	5	6=5-4
1
2
...

*Note: Market Value vs. Purchase Price: If the security is held for 1 year, provision = 25%. If the security is held for 2 years, provision = 50%. If the security is held for 3 years, provision = 100%.

8. Unlisted-Listed Security Investment

Sl. No.	Name of the Security	Purchase Price (i.e., Cost)	Accrued Interest (%)	Accrued Interest Received	Accrued Interest Unreceived	Accrued Interest Received	Accrued Interest Unreceived	Provision %	Provision Amount
1	2	3	4	5	6	7	8	9	10=2*25%/50%/100%
1
2
...

*Note: Accrued Interest Unreceived: If the security/accrued interest/dividend is held for 1 year, provision = 25%. If the security/accrued interest/dividend is held for 2 years, provision = 50%. If the security/accrued interest/dividend is held for 3 years, provision = 100%.