BB broadens loan classification for NBFIs

The Bangladesh Bank (BB) on Monday added a new category of loan classification titled ‘Special Mention Account’ with the existing four for the Non-Bank Financial Institutions (NBFIs) that would help the central bank to get details about the asset quality of the entities.

Previously, NBFIs classified their loans under four categories- standard, sub-standard, doubtful and bad and loss but BB included ‘Special Mention Account’ in loans classification of NBFIs, making it five.

If any short-term loan remains unpaid over two months but less than three months will be classified as Special Mention Account.

If a long-term loan remains unpaid over three months and less than six month will be classified as Special Mention Account.

With the new move of adding a new category of loans, commercial banks and NBFIs have come to the same level.

Besides, if any NBFI disregards their loan disbursement policy, which includes proper and necessary documents and mortgage while sanctioning loan, will be classified as ‘Special Mention Account’, according to a BB circular.

On the other hand, if any client faces low profit; lack of adequate liquidity, weak strategy, the loan of the client will be classified as Special Mention Account, the circular added.

A senior official of the central bank said that the circular on loan classification and provision for the NBFIs would help the central bank tighten its monitoring.

The BB in its notice also gave instructions on keeping provision against classified loans.

Along with keeping provision at the rate of 20 per cent, 50 per cent and 100 per cent against substandard, doubtful and bad loans respectively, the NBFIs were also asked to maintain general provision against regular loans at variable rates depending on the nature of loans.

For reporting classified loans, the central bank asked the NBFIs to submit reports in 12 sheets on classified loans based on purposes and tenure of loans.

The BB issued the circular on the day stating that the instructions would come into force from September, 2021.

As of December last year, non-performing loans (NPLs) in the 33 NBFIs in the country stood at Tk 10,053.60 crore, which are 15.02 per cent of the total outstanding loans, according to the provisional data from the central bank.