BB heightens watch on large loans

Bangladesh Bank is set to bump up its monitoring of loans of Tk 50 crore and above with a view to minimising the risk of default loans of banks and financial institutions.

The move comes as an excessive debt of a large corporate group poses concerns about the health of the individual banks and financial institutions and the overall financial stability.

For that end, the BB yesterday introduced a new oversight framework named Central Database for Large Credit, which will collect, store and share credit data among the concerned banks and financial institutions.

The CDLC framework will help monitor the large loans in a more structured way by identifying and managing the low-quality assets well ahead of time before they appear as a cause for financial distress, said Anwarul Islam, deputy general manager of the BB.

In a notice yesterday, the central bank asked all banks and financial institutions to divide their large loans into four categories and report every month. In so doing, banks and financial institutions will be able to identify the budding stress in the loans.  The categories are: Standard-0 for regular loans, Standard-1 for the ones overdue for 1-29 days, Standard-2 for those overdue for 30-59 days and Standard-3 for low-quality loans.

Once the loan accounts are reported to CDLC as Standard-2 or Standard-3, the concerned banks and financial institutions will form a committee to come up with a corrective action plan for the accounts.

The framework will help banks/ financial institutions get early signals of stress on their loans and get the concerned parties involved in the process of settlement, it said.

The framework will help reduce the moral hazard of monitoring loans of individual bank/FI to the committee.

The financial stability department of the BB will make the required reporting formats available to the banks and financial institutions.

The central bank will also arrange a workshop to educate the banks and financial institutions with the CDLC framework as well as the reporting format.