Bangladesh Bank cuts banks' provisioning requirements

Banks will now get a special facility allowing them to maintain lower provisioning requirements for classified loans in agricultural, cottage, micro, and small enterprise sectors, according to the Bangladesh Bank.

Banks are required to maintain a 1.0-percent provision against outstanding loans that are classified as either "standard accounts" or "special mention accounts."

The decision was taken to encourage banks to disburse short-term agri loans and also disburse loans to CMSMEs enterprise sector.

"This is to increase agricultural and SME loans. Banks will have to maintain less security reserves than before against these loans", said one central banker.

Banks have to maintain provisioning from their operating profits. As a result, this concession will help banks increase their profits.

According to this decision, till December 31, 2026, all unclassified (standard) and short-term agricultural loans and cottage, micro and small (CMS) industrial enterprise loans in the CMSME sector will have to maintain provisioning at the rate of 1.0 per cent.

Representatives of the Association of Bankers Bangladesh (ABB), an organisation of top bank executives, raised this demand in a meeting with the Bangladesh Bank in the last week of last month.

jasimharoon@yahoo.com