Central bank issues new guidelines for managing credit risk

Bangladesh Bank has issued a set of newly modified guidelines for credit risk management for the country’s scheduled banks.

In a circular issued on Tuesday, the Banking Regulations and Policy Department (BRPD) of the central bank said the “Guidelines on Internal Credit Risk Rating System for Banks” were adopted to make the risk management system more effective and time-befitting.

The circular said once the new model, based on the guidelines, is followed properly, proper persons and organisation will get loans easily and it will also play an assistive role in reducing the volume of the default loans of banks.

The restructured guidelines on credit risk management were issued at a time when the country’s economists are very critical of and concerned over the rising trend of the default and non-performing loans in the banking sector.The recently released Bangladesh Bank data shows banks’ nonperforming loans rose by 20.23 percent or Tk 15,037 crore in the six months till June this year due to poor lending practices and absence of corporate governance.

The amount of the toxic loans hit Tk 89,340 crore in June and nearly 50 percent of the loans belong to half a dozen state-owned banks, according to the central bank data.This chunk now accounts for 10.41 percent of the total loans given by the banking sector, up from 9.31 percent in December last year.

The Bangladesh Bank circular said the new model of guidelines has 20 sub-sectors under four main sectors and 20 individual models were included in the guideline considering the characteristics, risk, financial capacity and efficiency of the management of each of the sub-sectors.The new model and guidelines will remain effective until June 30, 2019, said the BB circular.

source: UNB