All the scheduled banks will have to keep additional 1.0 per cent general provisioning against loans, which have enjoyed deferral/ time extension facilities, instead of all unclassified loans earlier.
The central bank clarified its latest position on the issue in a reply letter to the Bangladesh Association of Banks (BAB) on Tuesday.
The Financial Express obtained a copy of the Bangladesh Bank (BB)'s reply letter.
"Banks as well as their stakeholders will be benefited from the BB's latest clarification," a senior executive of a leading private commercial bank (PCB) told the FE.
He also said the banks would be able to offer higher dividends to their shareholders following the clarification.
Earlier on December 28, the BAB urged the central bank to exempt provisions for loans, against which instalments are being paid regularly, from the latest BB's directive on keeping an additional 1.0 per cent provisioning for all unclassified loans.
"We've sent a reply letter to the BAB with our clarification," a BB senior official told the FE on Tuesday night.
Earlier on December 10, the central bank asked the banks to increase provisioning for unclassified loans and loans in special mention accounts (SMA) by 1.0 per cent of performing loans, and incorporate these provisions in their balance sheets of 2020.
The amount of unclassified loans in the banking sector stood at about Tk 9.7 trillion as of September 30 last which was 91.12 per cent of total outstanding loans, the BB data showed.
A continuous loan, demand loan or term loan, which will remain overdue for a period of 02 (two) months or more, will be put into the SMA that will have to be reported to the Credit Information Bureau (CIB) of the central bank.
Under the existing regulations, the banks have to keep 0.25 per cent to 2.0 per cent provisions against loans under general category, 20 per cent against substandard category, 50 per cent against doubtful loans, and 100 per cent against bad or loss category.
"Majority of the borrowers have already availed the deferral or time extension facilities for paying their installments due to the Covid-19 pandemic," the central banker said while replying to a query.
Talking to the FE, Syed Mahbubur Rahman, former chairman of the Association of Bankers, Bangladesh (ABB), said it's a very welcome move of the BB. "It has clarified the confusion which was in the mind of the bankers."