LOAN CLASSIFICATION AND PROVISIONING
Bangladesh Bank | BRPD Circular No. 15 dated 27 November 2024 | Effective: 01 April 2025 | Applies to: All Scheduled Banks in Bangladesh including Islamic Banks
1. Categories of Loans and Advances
All loans and advances are grouped into four categories for the purpose of classification:
| SL | Category | Definition & Examples |
|---|---|---|
| 1 | Continuous Loan | Loan accounts in which transactions may be made within a certain limit and have an expiry date for full adjustment. Examples: Cash Credit (CC), Overdraft (OD). |
| 2 | Demand Loan | Loans repayable on demand by the bank. Includes Post Import Financing (PIF), Payment against Document (PAD), Foreign Bill Purchased (FBP), Inland Bill Purchased (IBP). Contingent or other liabilities turned into forced loans (without prior approval as regular loan) are also treated as Demand Loans. |
| 3 | Fixed Term Loan | Loans repayable within a specific time period under a specific repayment schedule. |
| 4 | Short-term Agricultural Credit | Short-term credits listed under the Agricultural and Rural Credit Policy and Program issued by the Agricultural Credit Department (ACD) of Bangladesh Bank. Agricultural sector credits repayable within 12 months are also included. |
2. When a Loan is Treated as Past Due / Overdue
All loans are treated as past due or overdue as follows:
| Loan Category | When Treated as Overdue / Past Due |
|---|---|
| Continuous Loan | From the following day of the expiry date, if not repaid / renewed. |
| Demand Loan | From the following day of the expiry date or demand by the bank, if not repaid. |
| Fixed Term Loan | Unpaid instalment(s) or part of instalment(s) are treated as past due from the following day of the due / expiry date. |
| Short-term Agricultural Credit | From the following day of the expiry date, if not repaid. |
3. Classification Under Objective Criteria
All loans are classified into seven grades based on the period of past due or overdue. The criteria below apply uniformly to all four loan categories:
| CL Grade | Status | Period of Past Due / Overdue |
|---|---|---|
| STD-0 | Unclassified | No past due or overdue |
| STD-1 | Unclassified | ≥ 1 day but < 1 month overdue |
| STD-2 | Unclassified | ≥ 1 month but < 2 months overdue |
| SMA | Unclassified | ≥ 2 months but < 3 months overdue |
| Sub-Standard (SS) | Classified (NPL) | ≥ 3 months but < 6 months overdue |
| Doubtful (DF) | Classified (NPL) | ≥ 6 months but < 12 months overdue |
| Bad / Loss (B/L) | Classified (NPL) | ≥ 12 months overdue |
Classified loans — Sub-Standard (SS), Doubtful (DF), and Bad/Loss (B/L) — are treated as Non-Performing Loans (NPL). Loans shall also be reported as defaulted loans under section 5(GaGa) of the Bank Company Act, 1991.
4. Classification Under Qualitative Criteria
Any loan may be classified to a higher grade than its objective criteria result if the bank judges that full repayment is unlikely, even without any past due or overdue. Classification reflects the degree of deterioration in the borrower's creditworthiness. The final classification applied is the worse of the objective and qualitative grades.
| Grade | Indicative Qualitative Assessment Factors |
|---|---|
| SMA | Obligor: Occasional overdrawn within the past year; below-average or declining profitability; barely acceptable liquidity; problems in strategic planning. Bank: Loan not made in compliance with internal policies; failure to maintain adequate and enforceable documentation; minor operational or governance weaknesses; poor control over collateral. |
| Sub-Standard (SS) | Recurrent overdrawn; low account turnover; competitive difficulties; location in a volatile industry with an acute drop in demand; very low profitability that is also declining; inadequate liquidity; cash flow less than repayment of principal and interest; weak management; doubts about integrity of management; conflict in corporate governance; unjustifiable lack of external audit; pending litigation of a significant nature. Bank: Absence of adequate documentation of obligor's net worth, profitability, liquidity and cash flow. |
| Doubtful (DF) | Permanent overdrawn; location in an industry with poor aggregate earnings or loss of markets; serious competitive problems; failure of key products; operational losses; illiquidity including the necessity to sell assets to meet operating expenses; cash flow less than required interest payments; very poor management; non-cooperative or hostile management; serious doubts about integrity of management; doubts about true ownership; complete absence of faith in financial statements. |
| Bad / Loss (B/L) | Obligor seeks new loans to finance operational losses; location in an industry that is disappearing; location in the bottom quartile of its industry in terms of profitability; technological obsolescence; very high losses; asset sales at a loss to meet operating expenses; cash flow less than production costs; no repayment source except liquidation; presence of money laundering, fraud, embezzlement or other criminal activity; no further support by owners. |
5. Improvement in Classification (Declassification)
A classified loan may be moved to a more favourable grade subject to the following authority requirements:
| Movement | Authority Required |
|---|---|
| B/L → DF or DF → SS | Managing Director / CEO — with appropriate written justification. |
| SS → SMA or STD | Board of Directors — with written justification presented by the originating branch and the MD/CEO. |
| Bangladesh Bank-classified loan | Cannot be declassified without consent of the concerned Department of Banking Inspection of Bangladesh Bank. |
Where there is disagreement on classification between bank management and Bangladesh Bank's inspection team, the judgment of Bangladesh Bank shall prevail.
6. Accounting of Interest on Classified Loans
- Sub-Standard (SS) and Doubtful (DF): Interest accrued is credited to the Interest Suspense Account — not to the Income Account.
- Bad/Loss (B/L): Charging of interest ceases immediately. If interest is charged for any special reason, it is preserved in the Interest Suspense Account.
- Rescheduled loans: Unrealised interest is credited to the Interest Suspense Account instead of the Income Account.
- Recovery: Upon recovery of classified loans, interest (both charged and uncharged) is recovered first; principal is adjusted thereafter.
- Litigation: Where a lawsuit is filed for recovery, interest up to the date of filing may be charged to the loan account — but must be preserved in the Interest Suspense Account.
7. Maintenance of Provision
Banks are required to maintain provisions at the following rates. These are absolute minimums; banks are encouraged to assess adequacy on a continuous basis.
7.1 Standard Provision Rates
| Provision Type | Classification / Category | Rate |
|---|---|---|
| General Provision | STD-0, STD-1, STD-2 (all unclassified loans) | 1% of outstanding |
| General Provision | SMA | 5% of outstanding |
| Specific Provision | Sub-Standard (SS) | 20% of base |
| Specific Provision | Doubtful (DF) | 50% of base |
| Specific Provision | Bad / Loss (B/L) | 100% of base |
7.2 Concessional Provision Rate — Short-term Agricultural Credit & CMSME
Bangladesh Bank has granted a temporary concession to encourage lending to the agricultural sector and small enterprises:
| Sector | Applicable Grade | Concessional Rate |
|---|---|---|
| Short-term Agricultural Credit & Cottage, Micro and Small (CMS) credits under CMSME | STD-0, STD-1, STD-2 and SMA (all unclassified — both Standard & SMA) | 0.50% of outstanding (valid until 31 December 2026) |
This concessional rate applies only to unclassified loans in these sectors. Specific provisions for SS, DF and B/L remain at the standard rates of 20%, 50% and 100% respectively. All other guidelines of BRPD Circular No. 15/2024 remain unchanged.
8. Base for Specific Provision
| Type of Eligible Collateral | Base for Specific Provision |
|---|---|
| Deposit under lien; Government bond / savings certificate under lien; Guarantee by Govt of Bangladesh, Bangladesh Bank, or AAA-rated MDBs | Outstanding balance minus Interest Suspense minus full value of eligible collateral. (No minimum floor applies.) |
| All other eligible collaterals (land & building, gold, shares, easily marketable commodities) | The GREATER of: (i) Outstanding balance minus Interest Suspense minus eligible collateral value; OR (ii) 15% of the outstanding balance of the loan. |
9. Eligible Collateral
The following collateral types are recognised as eligible collateral for deduction from the outstanding balance when calculating the base for provision:
| Value Deducted | Eligible Collateral |
|---|---|
| 100% |
(a) Deposit under lien against the loan (b) Government bond / savings certificate under lien (c) Guarantee given by the Government of Bangladesh, Bangladesh Bank, or AAA-rated Multilateral Development Banks (MDBs) (d) Market value of gold or gold ornaments pledged with the bank |
| 50% |
(a) Market value of easily marketable commodities kept under control of the bank (b) Market value of land and building mortgaged with the bank (valuation by Bangladesh Bank-enlisted firm is mandatory) (c) 50% of the average market value for the last 6 months, OR 50% of the face value, OR 50% of the last closing price of shares traded in stock exchange — whichever is the lowest |
Collateral valuation notes:
- Easily marketable goods must be pledged, readily en-cashable, under full control of the bank, and periodically verified including insurance cover and expiry checks.
- Land and buildings must be valued by a Bangladesh Bank-enlisted collateral valuation firm. Temporary structures are not recognised as buildings.
- Collateral revaluation: movable collateral — not more frequently than once a year; immovable — not more frequently than once every three years. Where objective evidence requires earlier revaluation, the lower of the last two valuations applies.
10. General Instructions and Reporting
- Classification activities are conducted on a quarterly basis.
- CL forms: CL-1 (consolidated summary), CL-2 (Continuous Loans), CL-3 (Demand Loans), CL-4 (Fixed Term Loans), CL-5 (Short-term Agricultural Credit).
- CL-1 statements (both Domestic Banking Unit and Offshore Banking Unit) must be uploaded to Bangladesh Bank's Enterprise Data Warehouse (EDW) using template T_PS_Q_LN_PROV.
- Submission deadline: Within the 15th of the month following each quarter-end. Non-compliance may result in penalty.
- Classification status of each loan must be reported to the Credit Information Bureau (CIB) per Bangladesh Bank instructions.
- Written justification — signed by both the classifying officer and the reviewer — must be maintained in each loan file and made available for Bangladesh Bank inspection.
- Off-Balance Sheet exposures: Provisioning follows BRPD Circular No. 06/2023 (not covered by BRPD 15/2024).
- Islamic banks: This classification and provisioning policy applies equally to investments of Islamic banks (BRPD 15/2024, Para 13).
11. Quick Recall — Mnemonics and Memory Hooks
| Memory Hook / Mnemonic | What It Locks In |
|---|---|
| "C – D – F – S" | 4 loan categories: Continuous, Demand, Fixed Term, Short-term Agricultural Credit |
| "0 → 1 → 2 → SMA → SS → DF → BL" | 7-tier journey. Like a patient's condition: Stable-0, Stable-1, Stable-2 → Special Watch → Sub-standard → Doubtful → Bad/Lost |
| "3 – 6 – 12" | SS triggers at 3 months | DF at 6 months | B/L at 12 months overdue. Think of it as a doctor's prescription: review at 3, 6, 12 months. |
| "NEXT DAY Rule" | ALL loan types become past due from the next day after the expiry / due date — no grace period. |
| "1 – 5 – 20 – 50 – 100" | Provision rates: STD = 1% | SMA = 5% | SS = 20% | DF = 50% | B/L = 100% |
| "Half-rate for farmers & small biz" | Short-term Agri & CMS/CMSME unclassified loans (STD + SMA): concessional rate of 0.50% until 31 Dec 2026 |
| "GGGM = 100%" | 100% collateral: Govt deposit lien, Govt bond/savings cert, Govt/BB/MDB Guarantee, Market value of Gold |
| "LSS = 50%" | 50% collateral: Land & building, Shares (lowest of avg 6-month / face value / last closing), Saleable commodities |
| "Floor = 15%" | Base for specific provision floor (for other-than-premium collateral) = 15% of outstanding balance |
| "IFRS 9 by 2027" | Bangladesh Bank targets Expected Credit Loss (ECL) methodology under IFRS 9 by 2027 — forward-looking provisioning |
Source: Bangladesh Bank, BRPD Circular No. 15 dated 27 November 2024 (effective 01 April 2025); BRPD Circular No. 05 dated 25 June 2025 (revised CL reporting forms — all other instructions unchanged); Bangladesh Bank circular on concessional provision for Short-term Agricultural Credit & CMS/CMSME (December 2025, valid until 31 December 2026, supersedes October 2025 circular). This circular supersedes BRPD Circular No. 14/2012 and all subsequent modifications. Off-Balance Sheet provisioning: BRPD Circular No. 06/2023.
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