Provisioning rules eased for bank loans

The central bank yesterday relaxed the rules on the provisioning of bank loans to brokerage houses, merchant banks, and stock dealers.

With the new decision, the general provisioning requirement of banks will be 1 per cent against their loans to brokerage firms, stock dealers, and merchant banks, said a Bangladesh Bank circular.

The cenbank in 2012 advised banks to maintain a 2 per cent general provision on the unclassified amount for loans to brokerage houses, merchant banks and stock dealers.

Now it has been decided that banks would have to maintain a general provision of 1 per cent on unclassified amounts for loans to brokerage houses, merchant banks and stock dealers, the BB circular read. The new rate will come into force from March 30.

Any drop in the value of the investment portfolio must be backed by full provisions for the sake of depositors’ safety, the central bank said, adding that commercial banks’ key job is to efficiently lend money and collect funds from depositors. Provisioning is the act of setting aside a portion of profits in proportion to incurred or potential losses.