In a bid to standardise loan classifications in line with international benchmarks, Bangladesh Bank has announced new directives to be implemented from 1 April 2025.
Under the revised guidelines, loans overdue for 90 days or three months will be classified as non-performing.
Furthermore, bad loans will require a 100% provision.
Central bank's Banking Regulation and Policy Department issued a circular on Wednesday (27 November) outlining the changes.
According to the directive, any loan instalment not paid within the due period will be classified as defaulted.
Loans overdue for 3 to 6 months will be termed substandard, those overdue for 6 to 12 months as doubtful, and those overdue for more than 12 months as bad loans.
Provisions of 1% will be required for regular loans, with up to 100% provision for bad loans.
However, the circular did not provide any clarification regarding the widely debated practice of regularising loans through one-time payments for rescheduling.
The circular further stated that, in accordance with Basel III principles, all overdue loans will be categorised based on repayment delays.
Loans overdue for 3 to 6 months will fall under the substandard category, 6 to 12 months as doubtful, and over 12 months as bad or loss loans.
Provisions for standard loans will remain at 1% of the outstanding amount, while Special Mention Accounts (SMAs) will require a 5% provision.
For non-performing loans, the guidelines stipulate a 20% provision for substandard loans, 50% for doubtful loans, and 100% for bad loans.
Additionally, interest accrued on substandard or doubtful loans must be recorded in a suspense account instead of being recognised as income.
For loans classified as bad, interest will cease to accrue.
Suspense accounts must also be used for any interest charged on loans deemed bad for specific reasons, ensuring such amounts are not recognised as income.
Recoveries from non-performing loans must be adjusted against the loan balance.
According to sources, as of September, the amount of classified loans reached Tk2,84,977.31 crore.
Furthermore, Tk2,09,691 crore is locked in 67,519 cases under the Money Loan Court, while Tk1,53,000 crore remains tied up in writ petitions.
Another Tk50,000 crore is classified under Special Mention Accounts (SMAs).
In total, including unclassified defaulted loans, unpaid loans amount to Tk4,13,000 crore.
Additionally, Tk4,000 crore is involved in certificate cases, while audit-disclosed unreported defaults account for several thousand crore.
Under the new classification rules, total classified and unpaid loans are expected to reach Tk6,98,000 crore.
As of September, the total loans disbursed stood at Tk16,82,000 crore, with unpaid loans constituting 41.5% of the total.
Bangladesh Bank Governor Dr Ahsan H Mansur remarked that significant reforms are needed to reduce defaulted loans.
He added that existing barriers in Money Loan Courts would be addressed, and no leniency would be extended to defaulters in the future.
