Dhaka, Bangladesh
BB’s new guidelines for credit risk management

BB’s new guidelines for credit risk management

Bangladesh Bank has issued a set of newly modified guidelines for credit risk management for the country’s scheduled banks. In a circular issued on Tuesday, the Banking Regulations and Policy Department (BRPD) of the central bank said the “Guidelines on Internal Credit Risk Rating System for Banks” were adopted to make the risk management system more effective and time- befitting. The circular said once the new model, based on the guidelines, is followed properly, proper persons and organisation will get loans easily and it will also play an assistive role in reducing the volume of the default loans of banks. The restructured guidelines on credit risk management were issued at a time when the country’s economists are very critical of and concerned over the rising trend of the default and non-performing loans in the banking sector. The recently released Bangladesh Bank data shows banks’ nonperforming loans rose by 20.23 percent or Tk 15,037 crore in the six months till June this year due to poor lending practices and absence of corporate governance. The amount of the toxic loans hit Tk 89,340 crore in June and nearly 50 percent of the loans belong to half a dozen state-owned banks, according to the central bank data. This chunk now accounts for 10.41 percent of the total loans given by the banking sector, up from 9.31 percent in December last year. The Bangladesh Bank circular said the new model of guidelines has 20 sub-sectors under four main sectors and 20 individual models were included in the guideline considering the characteristics, risk, financial capacity and efficiency of the management of each of the sub-sectors. The new model and guidelines will remain effective until June 30, 2019, said the BB circular. Another report adds: Bangladesh Bank (BB) on Sunday warned nine banks- Dutch-Bangla Bank, Dhaka Bank, Trust Bank, BASIC Bank, Mutual Trust Bank, City Bank, Prime Bank, NCC Bank and Exim Bank- for selling dollars to importers at higher prices. The central bank said those banks have reported less than what they have charged importers for dollars. The BB now seeks explanations on why they would not be penalised for giving false information by hiding the actual data. The banks face a three-day deadline to respond to the notice issued on Sunday. If a bank fails to respond properly, it will be fined under the existing law. "These banks have charged importers one dollar more than the interbank rate," Bangladesh Bank spokesman Serajul Islam told the media. "The banks have taken advantage of the high demand for dollars in the market, which is an evil practice. The rates at which the banks have sold the dollars to the importers have been concealed from the central bank." In line with the instructions, banks are supposed to sell one dollar at Tk 83.85 at the import level. These nine banks have flouted the instructions by selling dollars to importers at rates ranging from Tk 84.6 to Tk 84.95. Islam said the notice was based on "clear evidence" found by a central bank team, according to bdnews24.com. Central bank officials said the demand for dollars rose as imports surpassed exports and inward remittances. The banks driven by the greed for profit cashed in on the high demand for the greenback. Many banks opened the letters of credit for importers, going beyond their capacity. In November last year, Bangladesh Bank served notice on 20 banks, citing the same complaints. Some banks were fined because they failed to provide clear answers. (Inpurts taken from UNB).

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