Classification and provisioning

       Categories of Investment:

All Investments will be grouped into four categories:

1. Continuous Investment
2. Demand Investment
3. Fixed Term Investment
4. Short Term Agricultural & Micro Credit

Definition of four categories:

1. Continuous Investment: The investment accounts in which transactions may be made within certain limit and have a expiry date for full adjustment will be treated as Continuous Investment.

Example: Bai Salam

2. Demand Investment: The investment that become repayable on demand by the bank will be treated as Demand Investment. 

Example: Bai Muazzal BB Bills

3. Fixed Term Investment: The investment which are repayable  within a specific time period under a specific repayment schedule, will be treated as Fixed Term Investment.

Example: HPSM

4. Short Term Agricultural & Micro Credit: Short-term Agricultural Credit will include:      

            a.        Short term credits as listed under the Annual Credit Program issued by the                                     Agricultural Credit and Financial Inclusion Department (ACFID) of Bangladesh                          Bank.

            b. Credit in the agricultural sector repayable within 12 (twelve) months will also be included here in.

            c.         Short term micro credit will include any micro credits not exceeding an amount                              of Fifty (50 ) thousand and repayablewithin 12 (twelve) months, be those termed in any names such as:

                       

i.        Non agricultural credit

ii.       Self-reliant credit

iii.    Weaver's Credit

iv.    Bank's individual projects credit

When an investment to be treated as Overdue:

SL No.	Categories	Criteria
1	Continuous	If not repaid or renewed within the fixed expiry date will be treated as overdue from the following day of  the expiry date.
2	Demand	If not repaid or renewed within the fixed expiry date or demand by the bank will be treated as overdue from the following day of the expiry date.
3	Fixed Term	Any installment or part of installment is not repaid within the due date, the amount of unpaid installment will be treated as overdue after six months of the expiry date.
4	Short Term Agricultural & Micro Credit	If not repaid within the fixed expiry date will be treated as overdue after six months of the expiry date.

Classifications under Objective Criteria: New Update

BRPD Circular 3, dated 21 April 2019, effective from 30 June 2019

Categories	Classification
	Standard	SMA	SS	DF	BL
Continuous	All unclassified investment other than SMA are Standard	Overdue for 2 months and more	Overdue for 3 months but less than 9 months	Overdue for 9 months but less than 12 months	Overdue for  12 months or beyond
Demand	Do	Do	Overdue for 3 months but less than 9 months	Overdue for 9 months but less than 12 months	Overdue for  12 months or beyond
Fixed Term	Do	Do	Overdue for 3 months but less than 9 months (any installment(s)/part of installment(s) of a Fixed Term Loan)	Overdue for 9 months but less than 12 months(any installment(s)/part of installment(s) of a Fixed Term Loan)	Overdue for  12 months or beyond (any installment(s)/part of installment(s) of a Fixed Term Loan)
Short Term Agricultural & Micro Credit	Do	Do	After a period of 12 months from due date	After a period of 36 months from due date	After a period of 60 months from due date

According to the circular, loans have to be treated as defaulted loan as per section 5 (GaGa) of the Banking Companies Act, 1991 and to be reported accordingly as per formats given in BRPD Circular No.08 dated August 02, 2015. In this regard, a portion of the "Sub-standard (SS)" loans will be reported as defaulted loan.   

Classifications under Qualitative Criteria:

Classification	Criteria
	If the following deficiencies are present then the deal will be classified as under
SMA	i. The investment was not made in compliance with the internal policies ii. Failure to maintain adequate and enforceable documentation iii. Poor control over collateral iv. Occasional overdrawn within the past year v. Below average or declining profitability vi. Barely acceptable liquidity vii. Problem in strategic planning
SS	i. Recurrent overdrawn ii. Low account turnover iii. Competitive difficulties iv. Location in a volatile industry with an acute drop in demand v. Very low profitability vi. Weak Management vii. Doubts about integrity of management viii. Conflict in corporate governance ix. Unjustifiable lack of external audit x. Pending litigation of a significant nature
DF	i. Permanent overdrawn ii. Location in an industry with poor aggregate earnings iii. Serious competitive problems iv. Failure of key products v. Operational losses vi. Illiquidity including the necessity to sell assets to meet operating expenses vii. Cash flow less than required interest payments viii. Very poor management ix. Non cooperative management x. Serious Doubts about integrity of management xi. Doubts about true ownership xii. Complete absence of faith in financial statements
BL	i. The obligator seeks new investments to finance operational losses ii. Location in an industry that is disappearing iii. Location in the bottom quartile of its industry in terms of profitability iv. Very high losses v. Assets sales at aloss to meet operational expenses vi. Cash flow less than production costs vii. No repayment source except liquidation viii. Presence of money laundering, fraud, embezzlement or other criminal activity ix. No further support by owners

 

Provisioning

Banks will be required to maintain provisions in the following two way:

1. General Provision
2. Specific Provision

       General Provision:

SL No.	Provision	Item
1	1.00 %	1. On all unclassified investments  :  for SME .25% 2. On off balance sheet exposure
2	2.00%	1. On unclassified amount for Housing Finance and Investment for    professionals under consumer financing 2. On unclassified amount for investment to Brokerage House, Merchant Banks, Stock Dealers etc.
3	5.00%	1. On unclassified amount for consumer financing 2. On the outstanding amount of loans kept in the SMA after netting off the amount of interest suspense

Specific Provision:

Categories	SS	DF	BL
Continuous	20.00%	50.00%	100.00%
Demand	20.00%	50.00%	100.00%
Fixed Term	20.00%	50.00%	100.00%
Short Term Agricultural & Micro Credit	5.00%	5.00%	100.00%

Base for Provision:

The provision will be maintained at the above rate on the balance calculated as the greater of the following two amounts:

1. The outstanding balance of the investment less the amount of profit suspense, rent suspense, compensation suspense and the value of eligible collateral; and
2. 20 % of the outstanding balance of the investment

Eligible Collateral:

The following collateral will be included as eligible collateral in determining base for provision:

 List of Eligible Collateral (as per BRPD circular no 14/2012 on Loan Classification and Provisioning):

Eligible Collateral:
100%	(a)  Deposit under lien against investment, (b)  Value of Govt bond/savings certificate under lien,  (c)  Value of guarantee by govt of Bangladesh,     (d)  Value of gold pledged with the bank,
50%	(a)Market value of easily convertible commodities kept under bank control (b) land and buildings mortgaged with the bank (c) average market value of share  for last 6 months or face value whichever is less