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Welcome to the Session on. Loan Classification and Provisioning. Loan Classification. Objectives of loan classification Frequency and parties related with loan classification Categories of loans. Basis for loan classification. Loan Classification(Objective Criteria). Loan Classification.
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Welcome to the Session on Loan Classification and Provisioning
Loan Classification • Objectives of loan classification • Frequency and parties related with loan classification • Categories of loans • Basis for loan classification
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
Loan Classification • Accounting of the interest of classified loans • Maintenance of provision • Base for Provision • Eligible Securities • Determination of Market Value of Eligible Securities
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.
Ratio of gross NPL* to total loans by type of banks(percent) Source: BB Annual Report , 2009-10
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
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
Bank Category Wise Write-off Loan (billion) Source: BB Annual Report.