Welcome to the Session on

1. Welcome to the Session on Loan Classification and Provisioning

2. Loan Classification • Objectives of loan classification • Frequency and parties related with loan classification • Categories of loans • Basis for loan classification

3. Loan Classification(Objective Criteria)

4. Loan Classification • Calculation of Overdue Period of Term Loan A = Frequency of Installments in Months B = Amount Paid Since Sanctioning/ Last Rescheduling C = Size of the Installment B×A D (Time Equivalent of Amount Paid) = C E = Period since First Repayment Due Length of Overdue = E - D

5. Loan Classification • Accounting of the interest of classified loans • Maintenance of provision • Base for Provision • Eligible Securities • Determination of Market Value of Eligible Securities

6. Eligible Securities • Gold/ Gold Ornaments 100% • 100 % of deposit under lien against the loan • 100 % of the value of government bond/Savings certificate under lien • Unexpired Guarantees( Govt, BB) 100% • Readily salable Goods under control of Bank 50% • Market Value of mortgaged property 50% • 50% of the average market value for last 6 months or 50% of the face value , whichever is less, of the shares traded in stock exchange.

7. Ratio of gross NPL* to total loans by type of banks(percent) Source: BB Annual Report , 2009-10

8. Write-Off • International practice to give a fair face to the balance sheet • Loans classified as ‘bad or loss’ for five years or more • Process of write off will be chronological • Cases are to be filled before write-off • ‘Debt Collection Unit’ • Outside agency

9. Write-Off • Written off loans to be kept in a separate ledger • To be reported to the CIB of Bangladesh Bank • Prior approval of the CB is required for writing off loans of the directors or former directors of the banks

10. Bank Category Wise Write-off Loan (billion) Source: BB Annual Report.

11. THANK YOU