In course of conducting credit operations by banks the quality of a portion of their loan portfolio, in many cases, deteriorates and uncertainty arises in realizing such loans and advances. These loans are adversely classified as per existing rules and necessary provision has to be made against such loans. Writing off bad loans having adequate provision is an internationally accepted normal phenomenon in banking business. Owing to the reluctance of banks in Bangladesh in resorting to this system their balance sheets are becoming unnecessarily and artificially inflated.
1. Banks
may, at any time, write off
loans classified as bad/loss. Those loans
which have been classified as bad/loss for
the
last 5 years and for
which 100% provisions have been kept should be written off
without delay.
2. Banks
may write off loans by debit to their
current year's
income account where 100% provision kept is not found adequate for
writing off such loans.
3. All out efforts
should be continued for realizing written off
loans. Banks allowed to write-off
classified loans below Tk. 50,000 without filing any case.
4.
A separate "Debt Collection Unit"
should be set up in the bank for recovery of
written off loans. 5. In order to accelerate the settlement of
law suits filed against the written off loans or to realize the receivable written off loans any agency
outside the bank can be engaged.
6. A separate ledger must be maintained for written off loans and in the Annual Report/Balance Sheet of
banks there must be a separate "notes to the accounts"
containing amount of cumulative and current year's
loan written off.
7.
In spite of writing off
the loans the concerned borrower
shall be identified as
defaulter as usual. Like other
loans and advances, the writing off
loans and advances
shall be reported to the CIB of
Bangladesh Bank.
8. Prior
approval of
Bangladesh Bank shall have to obtain in case of
writing off loans sanctioned to the director or
ex-director
of the bank or
loans
sanctioned
during
the tenure of
his directorship in the bank to the enterprise in which the
concerned director
has interest.
[Bangladesh
Bank has relaxed the guidelines for
writing off small bad loans as it considered the litigation cost is
sometimes higher
than the amount of a loan. It
allowed the scheduled banks to write-off classified loans below Tk.50,000 without filing any case. The banks will, however, have to comply with other
guidelines
while writing off the loans, said a circular
issued on Thursday. Earlier, the banks had to write off
any bad loan through filing case and keeping 100% provision.