POLICY ON LOAN CLASSIFICATION AND PROVISIONING

CORPORATE GOVERNANCE IN BANK MANAGEMENT

RESTRICTION ON LENDING TO DIRECTORS OF PRIVATE BANKS

RULES AND REGULATIONS FOR APPOINTMENT OF CHIEF EXECUTIVE AND ADVISOR IN BANKS

CONSTITUTION OF THE BOARD OF DIRECTORS AND FIT AND PROPER TEST FOR APPOINTMENT OF BANK DIRECTORS

CONSTITUTION OF THE AUDIT COMMITTEE OF BOARD OF DIRECTORS

DISCLOSURE REQUIREMENTS FOR BANKS

POLICY ON SINGLE BORROWER EXPOSURE

POLICY FOR RESCHEDULING OF LOANS

POLICY FOR LOAN WRITE OFF

LARGE LOAN RESTRUCTURING SCHEME (LLRS)

REQUIREMENT FOR OBTAINING INFORMATION ON LARGE LOAN FROM CREDIT INFORMATION BUREAU

PAYMENT OF DIVIDEND BY BANK COMPANIES

LOAN AGAINST SHARES, DEBENTURES ETC

INTEREST RATES ON DEPOSIT AND LENDING

BANK CHARGES

BANK DEPOSIT INSURANCE SCHEME

GUIDELINES ON MANAGING CORE RISKS IN BANKING

CREDIT RATING

PRUDENTIAL GUIDELINES FOR CONSUMER FINANCING AND SMALL ENTERPRISE FINANCING:

1. Definition of Capital 

For the purpose of supervision, capital will be categorized into two tiers: Tier 1 i.e., Core Capital comprises the highest quality capital elements and Tier 2 i.e., Supplementary Capital represents other elements which fall short of some of the characteristics of the core capital but contribute to the overall strength of a bank. The constituents of core capital and supplementary capital are enclosed at Annexure - I.

2. Minimum Capital Standards

Each bank will maintain a ratio of capital to risk weighted assets of not less than 9% with at least 4.5% in core capital and this requirement will have to be achieved by 30 June 2003. However, minimum capital requirements (paid up capital and reserve) for all banks will be Tk.100 crore as per Bank Company (Amendment) Act, 2003. ^[2]Banks having capital shortfall will have to meet at least 50% of the shortfall by 09 March 2004 and the rest by 09 March, 2005.

3. Risk-weighted Assets 

Both balance sheet assets and off- balance sheet exposures are to be weighted according to their relative risk. Presently, there are 4 (four) categories of risk weights ¾ 0,20,50 and 100 percent. For the purpose of assessing capital adequacy, weights for particular items are given in AnnexureII.

Off -balance sheet transactions to be converted into balance sheet equivalents for the purpose of assessing capital adequacy before assigning a risk weight as shown in section 10(a) of Annexure-II. Four categories of credit equivalents of 0,20,50 &100 percent will apply. Details are shown in Annexure III.

4. Implementation

 Banks are advised to assess their capital position on half-yearly basis i.e., on 30 June and 31 December each year and report the same to the Off-site Supervision Department of Bangladesh Bank within one month from the end of respective half-year. Banks are also advised to contact Banking Regulation and Policy Department (BRPD) of Bangladesh Bank in case of any confusion or ambiguity.

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[1] Master Circular issued vide BRPD circular No. 10 dated November 25, 2002.
[2] BRPD Circular No. 10 dated March 30, 2003

Paid up Capital
Non-repayable Share premium account
Statutory Reserve
General Reserve
Retained Earnings
Minority interest in Subsidiaries
Non-Cumulative irredeemable Preference Shares
Dividend Equalization Account

SUPPLEMENTARY CAPITAL (TIER 2)

General provision maintained against unclassified loans ^[3]
Assets Revaluation Reserves
All other Preference Shares
Perpetual Subordinated debt
Exchange Equalization A/C

Note 1: Core Capital must be equal to or more than 4.5% of the risk-weighted assets.

Note 2: Reserves created by periodic revaluation of banks' assets can be included as a component of Tier-2 capital only if the revaluation is formally conducted by professionally qualified valuation firm. Such reserves will be eligible up to 50% for the treatment as Supplementary Capital provided that the external auditors of the bank duly certify the rationale of the re-valued amount. Such revaluation may be done once in a year.

 

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[3]  BRPD Circular No. 07 dated August 28, 2006

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[4]  BRPD Circular No. 1 dated February 19, 2007
[5]  BRPD Circular No. 3 dated May 09, 2004

1. Categories of Loans

All loans and advances will be grouped into 4(four) categories for the purpose of classification, namely (a) Continuous Loan (b) Demand Loan (c) Fixed Term Loan and (d) Short-term Agricultural and Micro Credit.

Continuous Loan: - The loan Accounts in which transactions may be made within certain limit and have an expiry date for full adjustment will be treated as Continuous Loans. Examples are: CC, OD etc.

Demand Loan: The loans that become repayable on demand by the bank will be treated as Demand Loans. If any contingent or any other liabilities are turned to forced loans (i.e. without any prior approval as regular loan) those too will be treated as Demand Loans. Such as: Forced LIM, PAD, FBP, and IBP etc.

Fixed Term Loan: The loans, which are repayable within a specific time period under a specific repayment schedule will be treated as Fixed Term Loans.

Short-term Agricultural Credit will include the short-term credits as listed under the Annual Credit Programme issued by the Agricultural Credit Department of Bangladesh Bank. Credits in the agricultural sector repayable within less than 12 months will also be included herein. Short-term Micro-Credits will include any micro-credits for less than Tk.25,000/= and repayable within less than 12 months, be those termed in any names such as Non-agricultural credit, Self-reliant Credit, Weaver's Credit or Bank's individual project credit.

2. Basis for Loan Classification: -

(A) Objective Criteria:

(1) ^[6] Any Continuous Loan if not repaid/renewed within the fixed expiry date for repayment will be treated as past due/overdue from the following day of the expiry date. This loan will be classified as Sub-standard if it remains past due/overdue for 6 months or beyond but less than 9 months, as `Doubtful' if for 9 months or beyond but less than 12 months and as `Bad-Debt' if for 12months or beyond.

(2) (1) Any Demand Loan if not repaid/rescheduled within the fixed expiry date for repayment will be treated as past due/overdue from the following day of the expiry date. This Loan will be classified as Sub-standard if it remains past due/overdue for 6 months or beyond but not over 9 months from the date of claim by the bank or from the date of creation of the forced loan; likewise the loan will be classified as "Doubtful' and Bad/loss if remains past due/overdue for 9 months or beyond but not over 12 months and for 12 months and beyond respectively.

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[6]  BRPD Circular No. 05 dated June 05, 2006
     BRPD Circular No. 16 dated December 06, 1998, effective from January 01, 1999
      BRPD Circular No. 34/89 & 20/94

(3) In case any installment (s) or part of installment (s) of a Fixed Term Loan is not repaid within the due date, the amount of unpaid installment (s) will be termed as `defaulted installment'.

(3.1) In case of Fixed Term Loans, which are repayable within maximum five years of time: -

If the amount of `defaulted installment' is equal to or more than the amount of installment (s) due within 6 months, the entire loan will be classified as ``Sub-standard''.

If the amount of 'defaulted installment' is equal to or more than the amount of installment (s) due within 12 months, the entire loan will be classified as ''Doubtful.

If the amount of 'defaulted installment' is equal to or more than the amount of installment (s) due within 18 months, the entire loan will be classified as ''Bad -Debt.''

(3.2) In case of Fixed Term Loans, which are repayable in more than five years of time: -

(a) If the amount of `defaulted installment' is equal to or more than the amount of installment (s) due within 12 months, the entire loan will be classified as 'Sub-standard.'

(b) If the amount of `defaulted installment ' is equal to or more than the amount of installment (s) due within 18 months, the entire loan will be classified as 'Doubtful'.

(c) If the amount of 'defaulted installment 'is equal to or more than the amount of installment (s) due within 24 months, the entire loan will be classified as 'Bad-Debt'.

Explanation: If any Fixed Term Loan is repayable at monthly installment, the amount of installment (s) due within 6 months will be equal to the amount of summation of 6 monthly installments. Similarly, if repayable at quarterly installment, the amount of installment (s) due within 6 months will be equal to the amount of summation of 2 quarterly installments.

(4) The Short-term Agricultural and Micro - Credit will be considered irregular if not repaid within the due date as stipulated in the loan agreement. If the said irregular status continues, the credit will be classified as 'Substandard ' after a period of 12 months, as 'Doubtful' after a period of 36 months and as 'Bad Debt' after a period of 60 months from the stipulated due date as per loan agreement.

(5) All unclassified loans other than Special Mention Account (SMA) will be treated as Standard.

(6) A Continuous credit, Demand loan or a Term Loan which will remain overdue for a period of 90 days or more, will be put into the "Special Mention Account (SMA)''. This will help banks to look at accounts with potential problems in a focused manner and it will capture early warning signals for accounts showing first sign of weakness. Loans in the "Special Mention Account (SMA)" will have to be reported to the Credit Information Bureau (CIB) of Bangladesh Bank. However, it is reiterated that loans in the "Special Mention Account" will not be treated as defaulted loan for the purpose of section 27KaKa(3) of the Bank Company Act, 1991.

(B). Qualitative Judgment:

If any uncertainty or doubt arises in respect of recovery of any Continuous Loan, Demand Loan or Fixed Term Loan, the same will have to be classified on the basis of qualitative judgment be it classifiable or not on the basis of objective criteria.

If any situational changes occur in the stipulations in terms of which the loan was extended or if the capital of the borrower is impaired due to adverse conditions or if the value of the securities decreases or if the recovery of the loan becomes uncertain due to any other unfavorable situation, the loan will have to be classified on the basis of qualitative judgment .

Besides, if any loan is illogically or repeatedly re-scheduled or the norms of re-scheduling are violated or instances of (propensity to) frequently exceeding the loan-limit are noticed or legal action is lodged for recovery of the loan or the loan is extended without the approval of the proper authority, it will have to be classified on the basis of qualitative judgment .

Despite the probability of any loan's being affected due to the reasons stated above or for any other reasons, if there exists any hope for change of the existing condition by resorting to proper steps, the loan, on the basis of qualitative judgment, will be classified as 'Sub-standard '. But even if after resorting to proper steps, there exists no certainty of total recovery of the loan, it will be classified as ' Doubtful ' and even after exerting the all-out effort, there exists no chance of recovery, it will be classified as ' Bad-Debt ' on the basis of qualitative judgment.

The concerned bank will classify on the basis of qualitative judgment and can declassify the loans if qualitative improvement does occur.

But if any loan is classified by the Inspection Team of Bangladesh Bank, the same can be declassified with the approval of the Board of Directors of the bank. However, before placing such case to the Board, the CEO and concerned branch manager shall have to certify that the conditions for declassification have been fulfilled.^[7]

3. Accounting of the interest of classified loans:

If any loan or advance is classified as 'Sub-standard' and 'Doubtful', interest accrued on such loan will be credited to Interest Suspense Account, instead of crediting the same to Income Account. In case of rescheduled loans the unrealized interest, if any, will be credited to Interest Suspense Account, instead of crediting the same to Income Account.

As soon as any loan or advance is classified as 'Bad Debt', charging of interest in the same account will cease. In case of filing a law-suit for recovery of such loan, interest for the period till filing of the suit can be charged in the loan account in order to file the same for the amount of principal plus interest. But interest thus charged in the loan account has to be preserved in the 'Interest Suspense ' account. If any interest is charged in any 'Bad-Debt' account for any other special reason, the same will be preserved in the 'Interest Suspense' account.

If classified loan or part of it is recovered i.e., real deposit is effected in the loan account, first the interest charged and not charged is to be recovered from the said deposit and the principal to be adjusted afterwards.

Interest accrued on "Special Mention Account (SMA)'' will be credited to Interest Suspense Account, instead of crediting the same to Income Account.

4. Maintenance of provision:


(a) (i) Banks will be required to maintain General Provision in the following way :

(1) @ 1% against all unclassified loans (other than loans under Small Enterprise
and Consumer Financing and Special Mention Account.)

(2) @ 2% on the unclassified amount for Small Enterprise Financing.

(3) @ 5% on the unclassified amount for Consumer Financing whereas it has to
be maintained @ 2% on the unclassified amount for (i) Housing Finance and
(ii) Loans for Professionals to set up business under Consumer Financing
Scheme.

(4) @ 5% on the outstanding amount of loans kept in the 'Special Mention
Account' after netting off the amount of Interest Suspense.


(b) (i) Banks will maintain provision at the following rates in respect of classified
Continuous, Demand and Fixed Term Loans:

(1) Sub-standard 20%
(2) Doubtful 50%
(3) Bad/Loss 100%

(ii) Provision in respect of Short-term Agricultural and Micro-Credits is to be maintained at the following rates:

(1) All credits except 'Bad/Loss'(i.e. 'Doubtful', 'Sub-standard', irregular and regular credit accounts) : 5%
(2) 'Bad/Loss' : 100%

5. Base for Provision :

Provision will be maintained at the above rate on the balance to be ascertained by deducting the amount of 'Interest Suspense' and value of eligible securities from the outstanding balance of classified accounts.


6.Eligible Securities :

In the definition of 'Eligible Securities' as mentioned in the above paragraph the following securities will be included as eligible securities in determining base for provision:
-100% of deposit under lien against the loan
-100% of the value of government bond/savings certificate under lien.
-100% of the value of guarantee given by Government or Bangladesh Bank
-100% of the market value of gold or gold ornaments pledged with the bank.
-50% of the market value of easily marketable commodities kept under control of the bank
-Maximum 50% of the market value of land and building mortgaged with the bank
-50% of the average market value for last 06 months or 50% of the face value, whichever is less, of the shares traded in stock exchange.

7. Determination of Market Value of Eligible Securities

In determining market value of easily marketable commodities, land and building, banks are advised to follow the instructions mentioned below:

(a) Easily marketable goods will mean pledged, easily encashable/saleable goods that remain under full control of the bank. However, while the concerned bank branch official will conduct periodic inspection to verify as to whether issues such as the suitability of goods for use, expiry period, appropriateness of documentary evidences, up to date insurance cover, same will have to be assessed by the professional assessor from time to time.

(b) For land and building, banks will have to ensure whether title documents are in order and concerned land and building will have to be valued by the professional valuation firm along with completion of proper documentation in favour of the bank. In absence of professional valuation firm, certificate in favour of such valuation will have to be collected from the specialized engineer. Nevertheless, temporary houses including tin-shed structure shall not be shown as building.

(c) In order to facilitate the on-site inspection by our Department of Bank Inspection, banks are also advised to maintain complete statement of eligible securities on a separate sheet in the concerned loan file. Information such as description of eligible securities, their assessment by recognized firm, marketability of the commodity, control of the bank, and reasons for considering eligible securities etc. will have to be included in that sheet.
 

In view of the above, rescinding the previous instructions^[8] the specific demarcation of responsibilities and authorities among the board of directors, its chairman, Chief Executive Officer (CEO) of and adviser to the private bank in respect of its overall financial, operational and administrative policymaking and executive affairs including overall business activities, internal control, human resources management and development thereof, income and expenditure etc., along with lending and risk management issues, is outlined as follows:-

01. Responsibilities and authorities of the board of directors:

(a) Work-planning and strategic management:

(i) The board shall determine the objectives and goals and to this end shall chalk out strategies and work-plans on annual basis. It shall specially engage itself in the affairs of making strategies consistent with the determined objectives and goals and in the issues relating to structural change and reorganization for enhancement of institutional efficiency and other relevant policy matters. It shall analyze/monitor at quarterly rests the development of implementation of the work-plans.

(ii) The board shall have its analytical review incorporated in the Annual Report as regard the success/failure in achieving the business and other targets as set out in its annual work-plan and shall apprise the shareholders of its opinions/recommendations on future plans and strategies. It shall set the Key Performance Indicators (KPIs) for the CEO and other senior executives and have it evaluated at times.

(b) Lending and risk management:

(i) The policies, strategies, procedures etc. in respect of appraisal of loan/investment proposal, sanction, disbursement, recovery, reschedulement and write-off thereof shall be made with the board's approval under the purview of the existing laws, rules and regulations. The board shall specifically distribute the power of sanction of loan/investment and such distribution should desirably be made among the CEO and his subordinate executives as much as possible. No director, however, shall interfere, directly or indirectly, into the process of loan approval.

(ii) The board shall frame policies for risk management and get them complied with and shall monitor at quarterly rests the compliance thereof.

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[7]  BRPD Circular No. 16 dated July 24, 2003
[8]  BRPD Circular No. 09 dated September 17, 1996
 

(c) Internal control management:

The board shall be vigilant on the internal control system of the bank in order to attain and maintain satisfactory qualitative standard of its loan/investment portfolio. It shall review at quarterly rests the reports submitted by its audit committee regarding compliance of recommendations made in internal and external audit reports and the Bangladesh Bank inspection reports.

(d) Human resources management and development:

1. Policies relating to recruitment, promotion, transfer, disciplinary and punitive measures, human resources development etc. and service rules shall be framed and approved by the board. The chairman or the directors shall in no way involve themselves or interfere into or influence over any administrative affairs including recruitment, promotion, transfer and disciplinary measures as executed under the set service rules. No member of the board of directors shall be included in the selection committees for recruitment and promotion to different levels. Recruitment and promotion to the immediate two tiers below the CEO shall, however, rest upon the board. Such recruitment and promotion shall have to be carried out complying with the service rules i.e., policies for recruitment and promotion.

2. The board shall focus its special attention to the development of skills of bank's staff in different fields of its business activities including prudent appraisal of loan/investment proposals, and to the adoption of modern electronic and information technologies and the introduction of effective Management Information System (MIS). The board shall get these programs incorporated in its annual work plan.

(e) Financial management:

(i) The annual budget and the statutory financial statements shall finally be prepared with the approval of the board. It shall at quarterly rests review/monitor the positions in respect of bank's income, expenditure, liquidity, non-performing asset, capital base and adequacy, maintenance of loan loss provision and steps taken for recovery of defaulted loans including legal measures.

(ii) The board shall frame the policies and procedures for bank's purchase and procurement activities and shall accordingly approve the distribution of power for making such expenditures. The maximum possible delegation of such power shall rest on the CEO and his subordinates. The decision on matters relating to infrastructure development and purchase of land, building, vehicles etc. for the purpose of bank's business shall, however, be adopted with the approval of the board.

(f) Formation of supporting committees:

For decision on urgent matters an executive committee, whatever name called, may be formed with the directors. There shall be no committee or sub-committee of the board other than the executive committee and the audit committee. No alternate director shall be included in these committees.

(g) Appointment of CEO:

The board shall appoint a competent CEO for the bank with the approval of the Bangladesh Bank.

02. Responsibilities of the chairman of the board of directors:

(a) As the chairman of the board of directors (or chairman of any committee formed by the board or any director) does not personally possess the jurisdiction to apply policymaking or executive authority, he shall not participate in or interfere into the administrative or operational and routine affairs of the bank.

(b) The chairman may conduct on-site inspection of any bank-branch or financing activities under the purview of the oversight responsibilities of the board. He may call for any information relating to bank's operation or ask for investigation into any such affairs; he may submit such information or investigation report to the meeting of the board or the executive committee and if deemed necessary, with the approval of the board, he shall effect necessary action thereon in accordance with the set rules through the CEO. However, any complaint against the CEO shall have to be apprised to Bangladesh Bank through the board along with the statement of the CEO.

(c) The chairman may be offered an office-room, a personal secretary/assistant, a telephone at the office and a vehicle in the business-interest of the bank subject to the approval of the board.

03. Responsibilities of the adviser:

The adviser, whatever name called, shall advise the board of directors or the CEO on such issues only for which he is engaged in terms of the conditions of his appointment. He shall neither have access to the process of decision-making nor shall have the scope of effecting executive authority in any matters of the bank including financial, administrative or operational affairs.

04. Responsibilities and authorities of the CEO:

The CEO of the bank, whatever name called, shall discharge the responsibilities and effect the authorities as follows:

(a) In terms of the financial, business and administrative authorities vested upon him by the board, the CEO shall discharge his own responsibilities. He shall remain accountable for achievement of financial and other business targets by means of business plan, efficient implementation thereof and prudent administrative and financial management.

(b) The CEO shall ensure compliance of the Bank Companies Act, 1991 and/or other relevant laws and regulations in discharge of routine functions of the bank.

(c) The CEO shall report to Bangladesh Bank of issues violative of the Bank Companies Act, 1991 or of other laws/regulations and, if required, may apprise the board post facto.

(d) The recruitment and promotion of all staff of the bank except those in the two tiers below him shall rest on the CEO. He shall act in such cases in accordance with the approved service rules on the basis of the human resources policy and sanctioned strength of employees as approved by the board. The board or the chairman of any committee of the board or any director shall not get involved or interfere into such affairs. The authority relating to transfer of and disciplinary measures against the staff, except those at one tier below the CEO, shall rest on him, which he shall apply in accordance with the approved service rules. Besides, under the purview of the human resources policy as approved by the board, he shall nominate officers for training etc.

1. Any loan facility or guarantee or security provided to a Director of a bank or to his relatives must be sanctioned by the Board of Directors of the bank and approved in the general meeting and has to be specifically mentioned in the Balance sheet of the bank. However the total amount of the loan facilities extendable to a Director or to his relatives should not exceed 50% of the paid-up value of the shares of that bank held in Director's own name.

2. If the total amount of loan facilities already extended to a Director or to his relatives exceeds 50% of the paid-up value of the shares of the bank held in Director's own name, the amount in excess should be repaid within the time approved by Bangladesh Bank. Under no circumstances, renewal or extension of time of the loan facilities in excess of that 50% can be made.

3. No such loan wherein the borrower is exempted fully or partially from bearing the loss including Mudaraba or Musharaka systems of loan can be extended to any Director or any relatives of him.

4. Subject to compliance of the conditions mentioned in paragraph No.1 above, loan facilities in excess of Tk.50 lacs (including all direct or indirect loan facilities such as bank loan, all types of contingent liabilities like Letter of Credit and performance bond, bid bond or guarantee etc.) in favor of any Director or his relatives or proprietorship or partnership firms and private or public limited companies wherein those persons have interests, can be extended obtaining no-objection from Bangladesh Bank. Besides, subject to the limit as outlined above, if the amount of direct loans like Cash Credit, Overdraft, LIM, Pre-shipment Credit, LTR etc. is more than Tk.10 lacs, no-objection from Bangladesh Bank is to be obtained.

5. If any Director of a bank without being apparently involved in any industrial /commercial organization, conducts or directs accounts thereof or otherwise has control thereupon or extends collateral security or guarantee against any loans thereof, he will be treated to have interest in that organization/loan account.

6. Bank loan of any public limited company will be treated as liability of a Director of the bank in proportion of the amount (percentage) of shares of that company held by him.

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[9] BRPD Circular No. 7 dated August 5, 1999(also applicable for Alternate Directors vide BRPD Circular No.19 dated October 24, 2001).
[10] BCD Circular Letter No. 15 dated July 18, 1995.

7. If any Director extends guarantee against any loan for any specific amount, his liability will remain limited up to that specific amount.

8. In case of extending loan facilities in favor of the organization wherein the Director has interest, all kinds of legal formalities have to be properly executed as per norms.

9. Respective rules and regulations of Bank Companies Act, 1991 regarding loan facilities in general and other instructions of Bangladesh Bank should be followed as usual.

10. For the purpose of extending loan facilities, the explanation as given under Sub-section 27(2) of Bank Companies Act, 1991 will be applicable to define the term `Director', i.e., it will include his/her spouse, father, mother, son, daughter, brother, sister and all his dependants.

11. If any loans availed in the names of the Directors or organizations wherein they have interests, turn to defaulted ones, legal action has to be initiated instantly and inter alia the Directors have to be served with the notice under Section 17 of Bank Companies Act, 1991.

12. The quarterly statement of liabilities of the Directors and Ex-Directors of the bank as defined in the latest amendment of Bank Companies Act, 1991, will have to be submitted to Bangladesh Bank in the format as enclosed with the BRPD Circular Letter No. 8 dated 19 June, 1997.

13. ^[11]Any change/cancellation/return of security, collateral security, guarantee etc, provided against the loan of any Director or Ex-Director of a bank will require prior permission from Bangladesh Bank.

14. Any change of the conditions of any loans of any Director or Ex-Director of a bank will require prior permission from Bangladesh Bank. Copies of sanction-letters of all loans of the Director or Ex-Director have to be submitted to Bangladesh Bank. Copies of the sanction-letters of existing loans have to be submitted within September 30, 1999 to Banking Regulation and policy Department. In future, copies of the sanction-letters will have to be submitted to the said Department within 1(one) week from the date of sanction of the loan with the no-objection from Bangladesh Bank but before the disbursement of the loan.

15. The above rule will also be applicable in case of those loans extended in favor of any organizations wherein any Director/ex-Director of the bank has interest or he/she was once proprietor, partner, director or guarantor thereof; i.e., any change of the security, collateral security, guarantee provided against the loans of those organizations or of the conditions of sanction will require prior permission from Bangladesh Bank. Copies of sanction-letters of such loan-accounts will have to be submitted to Banking Regulation and policy Department within October 15, 1999.

16. No remission facilities (including A/C blocking) to any loan accounts wherein bank's Director or Ex-Director has interest can be allowed without prior permission from Bangladesh Bank. ^[12]However, in case of the Ex-Directors who are at present not holding any share of the bank including the Govt.-nominated Directors, the issue of waiver of interest on loans availed before they were Directors of the bank or after they ceased to be the Directors, with the permission of the Board of Directors of the bank will not require prior permission from Bangladesh Bank.

17. ^[13]If re-scheduling is required in case of loans extended before the issuance of BRPD Circular No. 07 dated 5.8.99 in favor of Director or any organization wherein he has interest, time of repayment in case of term loan can be extended for maximum 03(three) years and in case of working capital latest up to 31st December, 2001. The proposal of rescheduling has to be approved by the Board of Directors of the bank and will come into effect after obtaining no-objection from Bangladesh Bank. If the history of past repayment of loan accounts of the Director or wherein they have interests, is good and at the same time repayment is not being possible for reasons beyond control and temporary inconvenience, only those accounts will be considered for rescheduling as per above procedure.

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[11] BRPD Circular No. 11 dated September 20, 1999 (Sl. Nos. 13  16)
[12] BRPD Circular No. 2 dated January 21, 2002.
[13] BRPD Circular No. 1 dated January 30, 2000.
 

In bank management, the issue of good governance is very important. In order to strengthen the financial base of the bank and obtain confidence of the depositors, appointing honest, efficient, experienced and suitable Chief Executive is one of the responsibilities of the Board of Directors. In order to ensure good governance the following rules are issued for compliance of the banks replacing the previous instructions ^[15] in this respect:

1. Moral Integrity: 

In case of appointment to the post of Chief Executive /Adviser, satisfaction in respect of the concerned person should be ensured to the effects that: -

a) (s)he has not been convicted by any Criminal Court of Law;

b) (s)he has not violated any rules, regulations or procedures /norms set by any Controlling Authority;

c) (s)he was not associated with any such company /organization, registration or licence of which has been cancelled or which has gone into liquidation;

d) (s)he has not been disqualified to be the Chairman or Director or Chief Executive of any Company .

2. Experience and Suitability :

a) ^[16]For appointment as Chief Executive, the concerned person will have experience for at least 15 (fifteen) years as an active officer in bank or financial institution and at least for 02 (two) years in the post immediate to the post of the Chief Executive of a bank. The tenure of the Chief Executive shall be for at least 03 (three) years, which is renewable. For appointment as Adviser, 15 (fifteen) years' job experience in bank or financial institution or administrative experience will be regarded as eligibility. ^[17] But, the tenure of the Adviser shall not exceed 01 (one) year.

b) Higher academic education in the field of Economics, Banking and Finance or Business Administration will be regarded as additional qualification for the concerned person.

c) In respect of service, the concerned person should have high record of performance.

d) Satisfaction should be ensured that the concerned person was not dismissed from his service when he was Chairman/Director/Official of any company;

e) No Director of the Bank or financial institution or person who has business interest in that bank will be considered eligible for appointment to the post of Chief Executive/ Adviser.

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[14] BRPD Circular No. 15 dated September 03, 2002
[15] BCD Circular letter No. 23 dated 09.10.95 and BRPD Circular letter No.12 dated 10.05.99.
[16] BRPD Circular Letter No. 06 dated March 16, 2003.
[17] BRPD Circular Letter No. 16 dated August 09, 2003.
 

3. Transparency and Financial Integrity:

Before appointment as chief Executive/Adviser, satisfaction should be ensured to the effects that:

a) The concerned person was not involved in any illegal activity while performing duties in his own or banking profession;

b) (s)he has not suspended payment or has not compounded with his creditors;

c) (s)he has never been adjudicated an insolvent .

4. Before appointment as Chief Executive or Adviser, prior permission in writing from Bangladesh Bank as per provision of Sub-section (4) of Section 15 of Bank Companies Act, 1991 should be obtained. In order to have such permission, full bio-data and terms and conditions of appointment (mentioning direct and indirect payable salary and allowances and facilities) should be submitted to Bangladesh Bank. ^[18]The banks are required to follow the guidelines stated below while determining the salary and allowances of the Cheif Executive and submitting such proposal to Bangladesh Bank: -

(1) In fixing the salary and allowances of the Chief Executive of a bank, financial condition, area of operation, business-volume and earning capacity of the bank, qualifications, age and experience of the person concerned and the remuneration paid to the persons occupying same position in the peer banks shall have to be taken into consideration.

(2) Total salary shall be comprised of direct salary covering 'Basic Pay' and 'House Rent' and allowances as 'Others'. The allowances (e.g., provident fund, utility bill, leave-fare assistance etc.) in 'Others' head should be specified in amount/ceiling. Besides, other facilities (e.g., car, fuel, driver etc.), as far as possible, shall have to be monetized and thus determining monthly total salary, it shall have to be mentioned in the proposal to be submitted to Bangladesh Bank. In the proposal, Basic Pay, House Rent, Festival Allowance, other allowances and other facilities shall have to be specified in amount in Taka.

(3) Terms of salary-allowances and other facilities as specified in the terms and conditions of appointment cannot be changed during the tenure. In case of renewal, proposal may be made for re-fixation of the salary considering the job performance of the incumbent Chief Executive.

(4) The Chief Executive so appointed shall not get any other direct or indirect facilities (e.g., dividend, commission, bonus, club expense etc.) other than the salary-allowances and other facilities as enumerated in item no. (2).
(5) The bank shall not pay any income tax for the Chief Executive, i.e., the Chief Executive so appointed shall have to pay it.

5. No person crossing the age of 65 years shall hold the post of Chief Executive of a bank.]

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[18] BRPD Circular Letter No. 04 dated February 01, 2006

Bangladesh Bank deems it necessary to issue directives for compliance of the bank-company regarding constitution of the board of directors and fit and proper test for appointment of directors in the interest of depositors and for securing proper management of the bank-companies. Therefore, in exercise of the powers conferred by section 45(1) of the Bank Companies Act, 1991, the following restrictions have been imposed regarding constitution of the board of directors and fit and proper test criteria for consideration and compliance of the appointing authority (viz.- general meeting, board of directors etc.) of the private banks regarding appointment or reappointment and filling up of casual vacancy of the offices of bank directors:

1. Constitution of the Board of Directors:-

a) The board of directors of the bank-companies shall be constituted of maximum 13 (thirteen) directors. However, the directors of the banks, where the number of directors is more than this number, shall be allowed to complete their present tenure of office.

b) This restriction shall apply to appointment/reappointment of the directors against retirement or filling casual vacancy subject to section 15 Ka Ka of the Bank Companies Act, 1991. -Not more than one member of a family will become director of a bank. For this purpose family members shall include spouse, parents, children, brothers and sisters of the director and other persons dependent on him/her.

2. Fit and Proper Test:-

a) The concerned person must have management/business or professional experience for at least 10 (ten) years;

b) (S)he has not been convicted in any criminal offence or involved in any fraud/forgery, financial crime or other illegal activities;

c) (S)he has not been subject to any adverse findings in any legal proceedings,

d) (S)he has not been convicted in regard to contravention of rules, regulations or disciplines of the regulatory authorities relating to financial sector;

e) (S)he has not been involved with a company/firm whose registration/license has been revoked or cancelled or which has gone into liquidation;

f) Loans taken by him/her or allied concern from any bank or financial institution have not become defaulted;

g) (S)he has not been adjudicated a bankrupt by a court;

h) (S)he must be loyal to the decisions of the board of directors. However, in case of note of dissent, (s)he may record it in the minutes of the board meeting and/or bring it to the notice of Bangladesh Bank considering its merit.

3. A person, proposed as a candidate for the office of director, shall furnish along with the consent letter for the purpose of section 93 of the Companies Act, 1994 a declaration as per the attached format (Annexure-A) that (s)he is not disqualified to become a bank director in accordance with the above mentioned fit and proper test.

4. The declaration shall have to be singed by the concerned person (candidate) and if elected it shall have to be forwarded to Bangladesh Bank by the Chairman of the board of directors.

5. The above-mentioned restrictions for qualifications of bank directors shall be in addition to any related laws/regulations for the time being in force.

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[19] BRPD Circular No. 12 dated April 26, 2003

a) I have not been convicted in any criminal offence or involved in any fraud/forgery, financial crime or other illegal activities;

b) There is no adverse opinion/findings regarding me in any legal proceedings,

c) I have not been convicted in regard to contravention of rules, regulations and disciplines of the regulatory authorities relating to financial sector;

d) I have not been involved with a company/firm whose registration/license has been revoked or cancelled or which has gone into liquidation;

e) There are no loans taken by me or my allied concern from any bank or financial institution that have become defaulted;

f) I have not been adjudicated a bankrupt by a court;

g) My spouse, parents, children, brothers and sisters or any other person dependent on me is not a director of this bank.

Overall Purpose/Objectives

The audit committee will assist the board in fulfilling its oversight responsibilities including implementation of the objectives, strategies and overall business plans set by the board for effective functioning of the bank. The committee will review the financial reporting process, the system of internal control and management of financial risks, the audit process, and the bank's process for monitoring compliance with laws and regulations and its own code of business conduct.

Roles and Responsibilities of the Audit Committee

The audit committee will:

Internal Control

(1) Evaluate whether management is setting the appropriate compliance culture by communicating the importance of internal control and the management of risk and ensuring that all employees have understanding of their roles and responsibilities;

(2) Review the arrangements made by the management for building a suitable Management Information System (MIS) including computerization system and its applications;

(3) Consider whether internal control strategies recommended by internal and external auditors have been implemented by the management;

(4) Review the existing risk management procedures for ensuring an effective internal check and control system ;

(5) Review the corrective measures taken by the management as regards the reports relating to fraud-forgery, deficiencies in internal control or other similar issues detected by internal and external auditors and inspectors of the regulatory authority and inform the board on a regular basis .

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[20] BRPD Circular No. 12 Dated December 23, 2002

Financial Reporting

(1) Review the annual financial statements and determine whether they are complete and consistent with the accounting standards set by the regulatory authority ;

(2) Meet with management and the external auditors to review the financial statements before their finalization .

Internal Audit

(1) Review the activities and organizational structure of the internal audit function and ensure that no unjustified restrictions or limitations is made ;

(2) Review the efficiency and effectiveness of internal audit function ;

(3) Review that findings and recommendations made by the internal auditors for removing the irregularities detected and also running the affairs of the bank are duly considered by the management.

External Audit

(1) Review the auditing performance of the external auditors and their audit reports ;

(2) Review that findings and recommendations made by the external auditors for removing the irregularities detected and also running the affairs of the bank are duly considered by the management.;

(3) Make recommendations to the board regarding the appointment of the external auditors.

Compliance with existing laws and Regulations

Review whether the laws and regulations framed by the regulatory authorities (central bank and other bodies) and internal regulations approved by the board have been complied with.

Other Responsibilities

(1) Place compliance report before the board on quarterly basis regarding regularization of the errors & omissions, fraud and forgeries and other irregularities as detected by the internal and external auditors and inspectors of regulatory authorities ;

(2) Perform other oversight functions as requested by the board and evaluate the committee's own performance on a regular basis .

Organization

(1) The audit committee will comprise of 03 (three) members ;

(2) Members of the committee will be nominated by the board of directors from the directors ;

(3) Members may be appointed for a 03 (three)-year term of office ;

(4) Company secretary of the bank will be the secretary of the audit committee .

Qualifications of the Member

(1) Integrity, dedication, and opportunity to spare time for the committee will have to be considered while giving nomination a director to the committee ;

(2) Each member should be capable of making valuable and effective contributions in the functioning of the committee ;

(3) To perform his or her role effectively each committee member should have adequate understanding of the detailed responsibilities of the committee membership as well as the bank's business, operations and its risks .

Meetings

(1) The audit committee should hold at least 3/4 meetings in a year and it can seat any time as it may deem fit ;

(2) The committee may invite such other persons (e.g. the CEO, head of internal audit) to its meetings, as it deems necessary ;

(3) The internal and external auditors of the bank should be invited to make presentations to the audit committee as appropriate ;

(4) To maximize effectiveness, detailed memorandum to be discussed in the meeting should be distributed to committee members well in advance of the meeting to allow proper consideration of enclosed papers ;

(5) The proceedings of all meetings will be minuted.

1. Cash:

(a) Local currency and foreign currency amounts in hand should be shown separately under the head Cash in hand.

(b) Balance with Bangladesh Bank and its agent bank(s) will be shown separately in local and foreign currency. Statutory deposit with Bangladesh Bank should be shown separately.

2. Balance with other banks and financial institutions:

(a) Balances with other banks and financial institutions should be segregated into two sub-heads viz., (i) In Bangladesh and (ii) Outside Bangladesh and should also state whether in current account or any other form of deposit. In case of foreign currency deposit, currency-wise amount and exchange rate should be mentioned.

(b) The balance with other banks and financial institutions should be analyzed as per the remaining maturity grouping.

3. Money at call on short notice:

Bank/financial institution-wise balance should be shown separately.

4. Investments:

a) Investments should be shown under the following heads:

Government Securities

(i) Treasury bill;

(ii) National Investment bond;

(iii) Bangladesh Bank Bills;

(iv) Government Notes/Bond;

(v) Prize bond;

(vi) Others.

Securities under lien against repurchase agreement should be mentioned separately.

Other Investments:

(i) Shares to be classified into preference, ordinary, deferred and other classes of shares showing separately shares fully paid up and party paid up.

(ii) Debentures & bond

(iii) Other investments

(iv) Gold etc.

b) All investments in shares and securities (both dealing and investment) should be revalued at the year-end. The quoted shares should be valued as per market price in the stock exchange(s) and unquoted shares as per book value of last audited balance sheet. Provisions should be made for any loss arising from diminution in value of investments. The current and long-time investment securities should be shown separately analyzing as per the remaining maturity grouping.

5. Loans and Advances:

(a) Loans and advances should be shown as per the remaining maturity grouping in the following order:

Repayable on demand

Not more than 3 months

More than 3 months but not more than 1 year

More than 1 year but not more than 5 years

More than 5 years.

(b) The items of loans and advances i.e., loans, Cash credits, Overdrafts should be segregated into two sub-heads viz.,(i) within Bangladesh and (ii) outside Bangladesh

(c) The loans and advances should be analyzed to disclose any significant concentration such as:-

(i) Advances to allied concerns of directors;

(ii) Advances to Chief Executive and other senior executives;

(iii) Advances to customers' group (number of clients and outstanding amount of loans and advances each amounting more than 15% of bank's total capital and classified amount therein and measures taken for recovery of such loan should be mentioned);

(iv) Industry-wise;

(v) Geographical location-wise.

(d) The loans and advances should also be classified into the categories of 'unclassified', 'sub-standard', 'doubtful' and 'bad/loss' in accordance with Bangladesh Bank directives.

(e) Loans and Advances should also be categorized on the basis of the following particulars:

(i) Loans considered good in respect of which the banking company is fully secured;

(ii) Loans considered good against which the banking company holds no security other than the debtor's personal guarantee;

(iii) Loans considered good secured by the personal undertakings of one or more parties in addition to the personal guarantee of the debtor;

(iv) Loans adversely classified; provision not maintained thereagainst;

(v) Loans due by directors or officers of the banking company or any of these either separately or jointly with any other persons.

(vi) Loans due from companies or firms in which the directors of the banking company have interests as directors, partners or managing agents or in case of private companies as members;

(vii) Maximum total amount of advance including temporary advance made at any time during the year to directors or managers or officers of the banking companies or any of them either separately or jointly with any other person;

(viii) Maximum total amount of advances, including temporary advances granted during the year to the companies or firms in which the directors of the banking company have interests as directors, partners or managing agents or in the case of private companies as members;

(ix) Due from banking companies;

(x) Amount of classified loan on which interest has not been charged, should be mentioned as follows:

a. Decrease/increase in provision, amount of loan written off and amount realised against loan previously written off;

b. Amount of provision kept against loan classified as 'bad/loss' on the date of preparing the balance sheet;

c. Interest creditable to the Interest Suspense a/c;

(xi) Cumulative amount of the written off loan and the amount written off during the current year should be shown separately. The amount of written off loan for which lawsuit has been filed should also be mentioned.

6. Bills purchased and discounted:

(a) Bill discounted and purchased will exclude Government Treasury bills. These bills should be classified into two sub-heads viz., (i) payable in Bangladesh and (ii) payable outside Bangladesh.

(b) The bills discounted and purchased should be analysed as per the following remaining maturity grouping:

Payable within 1 month;

Over 1 month but less than 3 months;

Over 3 months but less than 6 months;

6 months or more.

7. Fixed assets including premises, furniture and fixtures:

(a) Premises wholly or partially occupied by the banking company for the purpose of its business should be shown against "Fixed assets including premises (less accumulated depreciation)". In case of fixed capital expenditure, the original cost, and additions thereto and reductions therefrom during the year should be stated, as also the total depreciation written off or where sums have been written off on account of reduction of capital or revaluation of assets. Every balance sheet after the first balance sheet subsequent to the reduction or revaluation should show the

reduced figures with the date and amount of the reduction made. Furniture & fixture and other assets, terms of which have been completed and value written off, need not be shown in the balance sheet. However, if serviceability of such asset remains, its market value may be mentioned in the notes. Explanation for the bases of asset valuation and outcome of depreciation should be mentioned in details.

(b) A statement of the premises not used by the bank for its own or business purpose or the remaining part of the partially used premises and item-wise revenue generated from such assets should be incorporated.

8. Other assets:

(a) Other assets should be classified under the following categories:

(i) Investment in shares of subsidiary companies (In Bangladesh and outside Bangladesh);

(ii) Stationery, stamps, printing materials in stock etc.;

(iii) Advance rent and advertisement;

(iv) Interest accrued on investment but not collected, commission and brokerage receivable on shares and debentures and other income receivable;

(v) Security deposit;

(vi) Preliminary, formation and organization expenses, renovation/development expenses and prepaid expenses;

(vii) Branch adjustment;

(viii) Suspense Account;

(ix) Silver;

(x) Others.

(b) Other assets should be classified as per instruction of Bangladesh Bank and shown accordingly.

(c) Non-income-generating other assets item(s) should be shown separately.

9. Non-banking assets:

These represent assets acquired in satisfaction of claims. Its holding period should be separately mentioned. Value shown shall not exceed the market value. Non-income-generating non-banking item(s) should be shown separately.

10. Borrowings from other banks, financial institutions and agents:

These should be segregated into

(a) (i) In Bangladesh, and (ii) Outside Bangladesh;

(b) (i) Secured (stating the nature of securities) and (ii) Unsecured borrowing.

(c) (i) Repayable on demand (ii) Others (based on agreed maturity dates and periods of notice).

11. Deposits and other accounts:

The deposits should be analysed in terms of the following remaining maturity grouping showing separately other deposits and inter-bank deposits:

Repayable on demand;

Repayable within 1 month;

Over 1 month but within 6 months;

Over 6 months but within 1 year;

Over 1 year but within 5 years;

Over 5 years but within 10 years;

Unclaimed deposits for 10 years or more held by the bank should be shown separately.

12. Other liabilities:

Under this heading may be included such items as the following: Accumulated provision for loans and advances including bad debts, other provision, cumulative balance of interest suspense account, pension and insurance funds, unclaimed dividends, advance payments and unexplored discounts, liabilities to subsidiary companies, provision for taxation and any other liabilities.

a) Provision for loans and advances:

The provision account includes provision for adversely classified loan and general provision for unclassified loan.

(i) The note on movement in specific provision for bad and doubtful debts should be presented in the following format:

b) Interest Suspense Account:

This should be shown according to the following format:

(a) The notes on paid up capital should disclose the following:

i) The various classes of capital, if any, should be distinguished. Shares issued as fully paid up pursuant to any contract without payments in cash should be stated separately.

ii) Where circumstances permit, issued and subscribed capital and amount called up may be shown as one item e.g. Issued and Subscribed Capital ………...Shares of Tk .……. paid-up.

iii) In case of banking companies incorporated outside Bangladesh, the amount of deposit kept with the Bangladesh Bank under sub-section (3) of section 13 of the Bank Companies Act, 1991 should be shown under this head.

(b) Capital surplus/deficit should be mentioned in the note segregating the core capital and supplementary capital as per Bangladesh Bank directives relating to the capital adequacy.

14. Statutory Reserve:

(Under section 24 of Bank Companies Act, 1991)

Movement should be shown separately.

15. Other Reserve:

(a) Movement in each of the reserve account should be shown separately.

(b) Any capital reserve and revaluation reserve should be disclosed separately.

16. Surplus in Profit and Loss A/C:

Increase/decrease should be shown clearly.

17. Contingent liabilities:

a) These should be explained in the following manner:

Claims lodged with the bank company, which is not recognized as loan;

Money for which the bank is contingently liable in respect of guarantee issued favouring:

- Directors

- Government

- Bank and other financial institutions

- Others.

b) Commitments should be segregated as follows:

i) Documentary credits and short term trade related transactions;

ii) Forward asset purchased and forward deposits placed;

iii) Undrawn formal standby facilities, credit lines and commitments to lend:

-Under one year

-One year and over;

iv) Spot and forward foreign exchange rate contracts;

v) Other exchange contracts.

N.B. Explanations for the liabilities not shown in books and provisions kept thereagainst should be disclosed in notes.

18. Instructions on Notes to Profit and Loss Account items:

The disclosures in the Profit and Loss Account should include, but are not limited to, the following items of income and expenditure:

Income:

Interest, discount and similar income

Dividend income

Fee, commission and brokerage

Gains less Losses arising from dealing securities

Gains less Losses arising from investment securities

Gains less Losses arising from dealing in foreign currencies

Income from non-banking assets

Other operating income

Profit less Losses on interest rate changes.

Expenses:

Interest, fee and commission

Losses on loans and advances

Administrative expenses

Other operating expenses

Depreciation on banking assets.

19. Interest income:

The major sources of interest income as arising from loans and advances to customers, balances with other banks or financial institutions, accounts with foreign banks, etc. should be disclosed.

20. Interest paid on deposits and borrowings etc:

This may be shown under the heads as attributable to interest on deposits, interest on borrowings, interest on foreign bank accounts etc.

21. Investment income:

This will consist of sub-heads on interest on or profit from Bills, Treasury Bills, Notes, Bonds, Shares, Debentures etc.

22. Commission, exchange and brokerage:

Commission, exchange and brokerage should be shown separately.

23. Other operating income:

Other operating income should be disclosed item wise.

24. Directors' fees:

It should include:

a) Total fees paid for attending board meeting (rate of fee should be mentioned);

b) Other financial benefits [other financial benefits extended to the directors as per section 18(1) of the Bank Companies Act, 1991 excluding fees].

25. Provision for loan:

This will consist of the following:

(a) Provision for adversely classified loans and advances as per Bangladesh Bank directives.

(b) Provision for unclassified loans and advances.

26. Provision for diminution in value of investments:

Decline in value of investment should consist of the following divisions:

(a) Dealing securities

- Quoted

- Unquoted;

(b) Investment securities

- Quoted

- Unquoted.

27. Other provisions:

Provision kept against classified other-assets etc., should be stated.

28. Appropriations:

For the banks incorporated outside Bangladesh, policy in force for appropriation of profit should be followed and appropriations should be mentioned accordingly.

B. General Instructions:

1. These instructions for disclosure of financial statements shall apply to all bank companies and other financial institutions working in Bangladesh. The statements shall comprise of balance sheet, profit and loss account, cash flow statement, statement of changes in equity, liquidity statement and other explanatory notes.

2. Financial statements should include clear and concise disclosure of all significant aspects of accounting principles and procedures, which have been followed. The disclosure of all the significant accounting principles adopted shall be an integral part of the financial statements. The principles should normally be disclosed in one place. The principles should state the accounting conventions, bases of accounting and other principles adopted for determination of interest income and expenses, valuation of investment and dealing securities, segregation of balance sheet and off-balance sheet items, bad and doubtful debts, capital, foreign currencies, tangible fixed assets etc. The basis for determination of items relating to charges derived from general banking risks and the accounting treatment of such charges should be disclosed.

3. The notes to the financial statements shall provide relevant details of the items included in balance sheet, profit and loss account, cash flow statement, liquidity statement and statement of changes in equity, so that adequate disclosures are made for clear understanding of the users. The liquidity statement should be prepared according to the remaining maturity grouping.

4. The value of any asset or liability as shown in the balance sheet should not be off-set by way of deductions from another liability or asset unless there exists a legal right thereof.

5. The market prices of dealing securities and marketable investment securities should be disclosed if these are different from those shown in the financial statements.

6. The unrealised interest of loans classified as sub-standard, doubtful and bad/loss should not be included in the income; amount thereof should be mentioned in the notes.

7. The financial statements should disclose the details of the contingent liabilities and commitments. The statements should disclose the following items/events till the date on which the statements are prepared:

(a) the nature and amount of commitments to extend credit that are irrevocable because they cannot be withdrawn at the discretion of the bank without the risk of incurring significant penalty or expenses; and

(b) the nature and amount of contingencies and commitments arising from off-balance sheet items including those relating to:

(i) direct credit substitutes including general guarantees of indebtedness, bank acceptance guarantees and standby letters of credit serving as financial guarantees for loans and securities;

(ii) certain transaction related contingencies including performance bonds, bid bonds, warranties and standby letters of credit related to particular transactions;

(iii) short-term self-liquidating trade related contingencies arising from the movement of goods, such as documentary credits where the underlying shipment is used as security;

(iv) those sale and repurchase agreements not recognized in the balance sheet;

(v) interest and foreign exchange rate related items including swaps, options, futures etc.;

(vi) other commitments viz., note issuance facilities and revolving underwriting facilities.

8. (a) Any significant concentration of assets, liabilities or off-balance sheet items or such items that might have significant influence on the state of affairs of the bank should be disclosed in the notes of the relevant items. Such disclosure should be made in terms of geographical areas, customer or industry-groups etc.

(b) The net amount of foreign currency exposures should be disclosed.

9. The aggregate amount of secured liabilities and the nature and carried amount of the assets pledged as security, should be disclosed by way of notes.

10. A bank whose ordinary shares are publicly traded should present Earning Per Share (EPS) on the face of Profit and Loss Account, both in case of profit or loss per share. The bank should make a disclosure by way of note to the financial statements of the calculation of Earning Per Share in accordance with IAS-33.

11. (a) The financial statements should disclose the relationship and transactions between the bank and its related parties till the date on which the statements are prepared. A related party transaction is built on the ability of one party to control or significantly influence the other party either directly or indirectly. Parties may be related if they are under common control or influence. It is necessary to look at the substance of the relationship and not merely the legal form thereof. Even if there is no controlling relationship, the parties may still be related as long as there is at least significant influence of one on another. Significant influence can be attained by representation on the board of directors, participation in the policy making decisions, material inter-company transactions, inter-change of managerial personnel, dependence on technical information etc. A bank may advance a large sum or charge lower interest rates to a related party what is not usually done in case of a party not equally related. Despite the origination of related party transactions in the ordinary course of a bank's business, disclosure of information about such transactions is relevant for the sake of transparency. The spouse, parents, children, brother and sister of the bank directors and dependants of the directors would generally be included in the related party.

(b) The following disclosures are mandatory:

(i) Names of the Directors together with a list of entities in which they have interests;

(ii) All contracts of significance to which the bank, its subsidiary or any fellow subsidiary company was a party and wherein a director has interests subsisted at any time during the year or at the end of the year;

(iii) Share options given to directors and executives to acquire shares at 'nil' consideration or restricted share plan exercisable at a discount.

(iv) The nature of the related party relationship, the types of transactions and the elements of transactions;

(v) The lending policy to related parties shall be disclosed and in respect of related party transactions, the amount should include:

(a) each of loans and advances, deposits and guarantees and commitments; disclosures may include the aggregate amounts outstanding at the beginning and end of the period, as well as changes during the period;

(b) each of the principal items of deposit, expense and commission;

(c) the amount of the provision against loans and advances;

(d) irrevocable commitments and contingencies and commitment arising from other off-balance sheet items;

(vi) Full disclosure of balances at the balance sheet date resulting from transactions with directors and their related concerns shall be made together with an analysis as to the classified and unclassified advances, provision, if any, for possible losses on classified loans and advances, value of the securities held etc., and the amount of the loans, adversely classified, of the concerns of persons who were bank directors at the time the loans were extended. If such loans were written off or waived that should also be mentioned;

(vii) Detailed information of any business (like receiving/extending services, purchase/sale of properties, renting etc.) other than the banking business with any related concerns of the directors as per section 18(2) of the Bank Companies Act should be provided;

(viii) Detailed information of the amount invested along with a list, in the securities (both dealing and investment) of the directors and their related concerns.

12. Names of the members of the audit committee formed by the board of directors of the bank and their qualifications should be disclosed. Confirmation as to the number of meetings of the audit committee held with the bank's senior management to consider and review the bank's financial statements, the nature and scope of audit reviews and the effectiveness of the system of internal control and compliance thereof should be made.

13. The income items should be treated as income when there exists no risk or uncertainty regarding its realization.

14. Explanation regarding tax determination, provision thereagainst and approved expenditure in relation to it should be provided.

15. Detailed explanation about the procedure of conversion into local currency of the transactions made in foreign currency; income-expenditure in such business, impact (item-wise) of taxation on difference in exchange rate on assets and liabilities and impact of difference in exchange rate on taxation etc. should be given.

16. Reconciliation of books of accounts in regard to inter-bank (in Bangladesh and outside Bangladesh) and inter-branch transactions and adequate explanations in case of non-reconciliation should be provided.

17. Detailed information should be given regarding financing and management of the fund raised for staff pension considering it as a separate entity.

18. The external auditors must audit at least 80% of the risk-weighted assets of the bank before signing on the balance sheet and the person-hours they have spent for conducting the audit should be mentioned.

19. Figures should be rounded off to nearest Taka.

20. Highlights of the bank should be presented in the annual report as under:
 

22. The financial statements should be published in widely circulated one Bangla and one English daily newspapers within one week of submission of the statements to Bangladesh Bank so that the stakeholders of the bank including its depositors, shareholders and regulatory bodies can get information about the bank easily. These should also be disclosed in the bank's website.

In general, and as practiced Internationally, exposure ceiling is derived from a bank's total capital as defined under capital adequacy standards (Tier I and Tier II Capital). Following the same practice, Bangladesh Bank issued BRPD Circular No. 08 dated March 18, 2003, recommending uniform exposure limits for both local and foreign banks. In order to enable the banks to improve their credit risk management further, Bangladesh Bank is issuing this circular by consolidating all the instructions issued so far and incorporating some amendments to the previous circular.

01. As a result of increase in capital of almost all the banks, now it has been decided to reduce the single borrower exposure limit from 50% to 35%. Thus-

(a) The total outstanding financing facilities by a bank to any single person or enterprise or organization of a group shall not at any point of time exceed 35% of the bank's total capital subject to the condition that the maximum outstanding against fund based financing facilities (funded facilities) do not exceed 15% of the total capital. In this case total capital shall mean the capital held by banks as per sectioin-13 of the Bank Company Act, 1991.

(b) Non-funded credit facilities, e.g. letter of credit, guarantee etc.Can be provided to a single large borrower. But under no circumstances, the total amount of the funded and non-funded credit facilities shall exceed 35% of a bank's total capital.

However, in case of export sector single borrower exposure limit shall remain unchanged at 50% of the bank's total capital. But funded facilities in case of export credit shall also not exceed 15% of the total capital.

In addition, the banks shall follow the following prudential norms, where applicable:

02. (a) Loan sanctioned to any individual or enterprise or any organization of a group amounting to 10% or more of a bank's total capital shall be considered as large loan.

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[23] BRPD Circular No. 05, dated April 09, 2005

(b) The banks will be able to sanction large loans as per the following limits set against their respective classified loans :

03. (a) A public limited company, which has 50% or more public shareholdings, shall not be considered as an enterprise/organization of any group.

(b) In the cases of credit facilities provided against government guarantees and AAA rated Multilateral Development Banks (MDBs) guarantee, the aforementioned restrictions shall not be applicable. ²⁴

(c) In the cases of loans backed by cash and encashable securities (e.g.FDR), the actual lending facilities shall be determined by deducting the amount of such securities from the outstanding balance of the loans.

04. (a) Banks should collect the large loan information on their borrowers form Credit Information Bureau (CIB) of Bangladesh Bank before sanctioning renewing or rescheduling large loans in order to ensure that credit facilities are not being provided to defaulters.

(b) Banks must perform Lending Risk Analysis (LRA) before sanctioning or renewing large loans. If the rating of an LRA turns out to be "marginal", a bank shall not sanction the large loan, but it can consider renewal of an existing large loan taking into account other favorable, conditions and factors. However if the result of an LRA is unsatisfactory, neither sanction nor renewal of large loans can be considered.

(c) While sanctioning or renewing of large loan, a bank should judge its borrowers overall debt repayment capacity taking into consideration the borrower's liabilities with other banks and financial institutions.

(d) A banks shall examine is borrower's Cash Flow Statement, Audited Balance Sheet, Income Statement and other financial statements to make sure that its borrower has the ability to repay the loan.

(e) Sanctioning, renewing or rescheduling of large loans should be approved by the Board of Directors in case of local banks. Such decisions should be taken by the Chief Executives in case of foreign banks. However, while approving proposals of large loans, among other things, compliance with the above guidelines must be ensured.

05. For the loans that have already been disbursed with the approval of Bangladesh Bank, and that have exceeded the limit as stipulated in Section 01 (mentioned above), banks shall take necessary steps to bring down the loan amount within the specified limit. In order to accomplish this condition, banks may, if necessary, arrange partaking with other banks. However, for continuous loans, the limits has to be brought down as per Section 02 within December 2005. For term loans, the deadline is December 2006²⁵ and the deadline for both continuous & term is December 2006

06. Banks shall submit the monthly statement of large loan in the specified format (Form-L) to Department of Off-site Supervision of Bangladesh Bank within 10 days after the end of respective month.

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[24] BRPD Circular No. 02 dated February 19, 2007
[25] BRPD Circular No. 16 dated November 16, 2005
 

Guidelines for Consideration of Loan Rescheduling Applications:

While considering loan rescheduling application the banks shall follow the under mentioned guidelines:

When a borrower asks for rescheduling of loans the banks shall examine the causes as to why the loan has become non-performing. If it is found from such review that the borrower has diverted the funds elsewhere or the borrower is a habitual loan defaulter the bank shall not consider the application for loan rescheduling. Instead, the bank shall take/continue all legal steps for recovery of the loans.

At the time of considering loan rescheduling proposal bank must assess the borrower's overall repayment capacity taking into account the borrower's liability position with other banks.

In order to ensure whether the borrower would be able to repay the rescheduled installments/existing liability the bank shall review the borrower's cash flow statement, audited balance sheet, income statement and other financial statements.

Bank officers should ensure, if required, by spot inspection of the borrower's company/business place, that the concerned company/business enterprise will be able to generate surplus to repay the rescheduled liability. Such inspection reports should be preserved by the banks.

If a bank is satisfied after due diligence mentioned above that the borrower will be able to repay, the loan may be rescheduled. Otherwise, bank shall take all legal steps to realize the loan, make necessary provision and take measures to write-off.

The rescheduling shall be for a minimum reasonable period of time.

At the time of placing the rescheduling proposal before the Board of Directors the Bank shall apprise the Board in details, what would be implications of such loan rescheduling on the income and other areas of the bank.

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[26] BRPD Circular No. 01 dated January 13, 2003
[27] BCD Circular No. 18 dated December 11, 1995
 

Rescheduling of Term Loans:

The loans which are repayable within a specific time period under a prescribed repayment schedule are treated as Term Loans. For rescheduling such loans following policies shall, henceforth, be followed:

Application for first rescheduling will be considered only after cash payment of at least 15% of the overdue installments or 10% of the total outstanding amount of loan, whichever, is less;

Rescheduling application for the second time will be considered after cash payment of minimum 30% of the overdue installments or 20% of the total outstanding amount of loan, whichever, is less;

Application for rescheduling for more than two times will be considered after cash payment of minimum 50% of the overdue installments or 30% of the total outstanding amount of loan, whichever is less;

Explanation: If any loan is rescheduled once before issuance of this policy the conditions set forth in this circular for second rescheduling shall be applicable for rescheduling of such loans. Likewise, the terms for 3rd rescheduling as per this circular shall be applicable for rescheduling of any loan which has already been rescheduled twice.

Rescheduling of Demand and Continuous Loan:

The loans which can be transacted without any specific repayment schedule but have an expiry date for repayment and a limit are treated as Continuous Loan. In addition, the loans which become repayable after those are claimed by the bank, are treated as Demand Loans. If any contingent or any other liabilities are turned to forced loan (i.e. without any prior approval as regular loan) those also are treated as Demand Loans. For rescheduling of Demand and Continuous Loans the rates of down payment, depending on the loan amount, shall be as under:
 

Other Terms and Conditions of Rescheduling:

^[28]The Borrowers whose credit facility has been rescheduled will get new loan facility subject to fulfilment of the following conditions:-

a) The defaulting borrower who has availed interest waiver must settle at least 15% of the compromise amount (excluding the down payment on rescheduling as per present guidelines) to avail any further credit facility from any Bank.

b) In case of borrowing from other Banks, the same rule will be applicable, i.e. the borrower will have to settle at least 15% of compromise amount (excluding the down payment on rescheduling as per present guidelines), then, will be allowed to take regular facility from other Banks subject to the submission of NOC (No Objection Certificate) from the rescheduling bank.

c) Export borrowers may be granted further credit facility (after being identified as not a wilful defaulter), if required, subject to settle at least 7.5% of the compromise amount (excluding the down payment on rescheduling as per present guidelines) being paid.

d) If any such issue is already there (such fresh facility has already been allowed after allowing waiver), the same will not fall under purview of this circular.

e) Information on the loan accounts rescheduled shall be reported to the Credit Information Bureau (CIB) of Bangladesh Bank. While reporting to the CIB, such rescheduled loans/advances may be shown as RS 1 for first rescheduling, RS 2 for second and so on. Interest waivers given to the entity should be mentioned as RSIW.

Where the amount equal to minimum twice the amount of principal loan disbursed has been repaid till the date of issuance of this policy, the instructions contained in this circular shall not be mandatory for rescheduling of such loan for 1(one) year from the date of this circular.

For rescheduling as above no prior approval of Bangladesh Bank will be required ; however, prior approval of Bangladesh Bank shall have to be obtained if the loan is related to the director/ex-directors of a Bank Company.

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[28] BRPD Circular No. 02 dated February 14, 2006 & BRPD Circular No. 03 dated March 19, 2006

Banks may, at any time, write off loans classified as bad/loss. Those loans which have been classified as bad/loss for the last five years and for which 100% provisions have been kept should be written off without delay. After issuance of this circular the process of writing off all other loans classified as bad/loss should be started immediately. Under the process the oldest bad/loss classified loans should be considered first for written off.

Banks may write off loans by debit to their current year's income account where 100% provision kept is not found adequate for writing off such loans.

All out efforts should be continued for realizing written off loans. Cases must be filed in the court of law before writing off any loan for which no legal action has been initiated earlier.

A separate "Debt Collection Unit" should be set up in the bank for recovery of written off loans.

In order to accelerate the settlement of law suits filed against the written off loans or to realize the receivable written off loans any agency outside the bank can be engaged.

A separate ledger must be maintained for written off loans and in the Annual Report/Balance Sheet of banks there must be a separate "notes to the accounts" containing amount of cumulative and current year's loan written off.

Inspite of writing off the loans the concerned borrower shall be identified as defaulter as usual. Like other loans and advances, the writing off loans and advances shall be reported to the Credit Information Bureau (CIB) of Bangladesh Bank.

Prior approval of Bangladesh Bank shall have to obtained in case of writing off loans sanctioned to the director or ex-director of the bank or loans sanctioned during the tenure of his directorship in the bank to the enterprise in which the concerned director has interest (as per explanation contained in section 27(2) of the Bank Company Act, 1991).

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[29] BRPD Circular No. 02 dated January 13, 2003

1. The scheme will be known as "Large Loan Restructuring Scheme (LLRS)". The objective of the scheme is to ensure a transparent mechanism for restructuring of loans and to involve all the financing banks in the restructuring process. LLRS will apply to the loans provided by more than one banks under or outside the consortium arrangement with outstanding of Tk.50.00 crore and above. The scheme will not be applicable for loans sanctioned by a single banking company.

2. A two tier committee will be constituted for implementation of the LLRS. The constitution and functions of the committees will be as under:

A) Standing Committee

i) The Standing Committee will be constituted comprising the Chief Executives of all banks participating in LLRS. All banks working in the country shall participate in the scheme in their own interest and shall become members of the Committee. The Committee will be a self empowered body, which will lay down policies and guidelines for restructuring and rescheduling of large loans and monitor the performance of the scheme.

ii) Deputy Governor in charge of the Department of Off-site Supervision (DOS) of Bangladesh Bank shall act as Chairman of the Committee. The committee shall meet at least once in every three months.

iii) The committee may decide to have a permanent secretariat and to recruit whole time officers/staff for the secretariat. It will also lay down policies for sharing administrative and other expenses by the participating banks.

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[30] BRPD Circular No. 13 dated December 23, 2002

B. Inter-Bank Committee

i) There shall be an Inter-Bank Committee comprising the financing banks. In case of consortium loans the Chief Executive of the lead bank and in other cases the Chief Executive of largest financing bank shall be the Chairman of the Inter-Bank Committee.

ii) The Committee shall examine the viability of restructuring & rescheduling proposals of the loans and shall approve the proposals in appropriate cases. The committee may, if necessary, engage external consultants for evaluation of restructuring proposals. For the purpose, it may also take the help of Credit Rating Agencies working in the country. If any proposal for restructuring is not found suitable, the Committee will advise the banks to initiate appropriate legal steps for recovery of the debt.

C. Legal Basis

i) LLRS will be a voluntary and non-statutory mechanism based on Debtor-Creditor Agreement (DCA) and Inter-Creditor Agreement (ICA). The Standing Committee shall prepare specimen of such agreements in consultation with lawyers having expertise in the field.

ii) In the Debtor-Creditor Agreement there should be a clause containing "stand still" agreement binding for 90 days or 180 days by both sides. Under this clause both the debtor and creditors shall agree to a legally binding "stand-still" whereby both the parties commit themselves not to take recourse to any legal action during the "stand-still" period, this would facilitate the evaluation and processing of debt restructuring proposal without any outside intervention.

D. Miscellaneous.

i) While evaluating the debt restructuring or rescheduling proposal if any bank requires approval of Bangladesh Bank from the purview of large loan as per section 27(3) of the Bank Company Act, 1991 the bank shall have to obtain the approval from Bangladesh Bank for the same.

ii) If 75% of secured creditors by value, agree to a debt restructuring proposal, the same would be binding on the remaining secured creditors.

iii) Banks shall disclose in their published Annual Report/Balance Sheet under a separate "notes" the total amount of debt restructured under LLRS.

iv) Banks shall also send a quarterly statement containing the information of the debt rescheduled & restructured under LLRS to DOS of Bangladesh Bank.
 

In the above circular, branches of the banks were directed to collect from January 01, 1993 onwards, before taking effective steps on fresh loan-application of any borrower after receipt of the same or before renewal of regular loan account or rescheduling, whether he has availed of any loan-facility from any other bank and if he has, the required information on that loan from the Credit Information Bureau through their Head Offices. But it has been observed that many banks are conducting the process of sanction, renewal and rescheduling of loan without collecting information on loans from the Credit Information Bureau. Consequently, the defaulters are availing of the opportunities of obtaining fresh loan without repaying the defaulted one, which is undesirable.

Therefore, from now on it is made compulsory to obtain information on borrower from the Credit Information Bureau before sanctioning of fresh loan, renewal of regular loan or rescheduling of loan for Tk. 10^[32] lacs and above in favor of any borrower. Following procedures are instructed to be complied with in respect of sanction, renewal and rescheduling of large loan:

Credit information on borrower shall have to be collected from the Credit Information Bureau before sanctioning of fresh loan, renewal of regular loan or rescheduling of loan for Tk. 50^[33] lacs and above. Banks shall take the decision of sanctioning, renewing or rescheduling the loan at their own discretion and responsibility having examined the eligibility of the borrower in respect of availing of the loan after receiving the total information on the borrower from the Credit Information Bureau.

It was made compulsory to obtain information on borrower from the Credit Information Bureau before sanctioning of fresh loan, renewal of regular loan or rescheduling of loan for Tk. 10 lacs and above in favor of any borrower vide BCD Circular No. 07 dated June 17, 1995. Subsequently, the amount was raised to Tk. 50 lacs and above and the issue of collecting information on borrowers/clients from the CIB in respect of opening of L/C and issuance of Bank Guarantee was made optional vide BCD Circular No.09 dated June 29, 1995. Rescinding this Circular dated 29.06.95 it was made compulsory to obtain information on borrower from the CIB before sanctioning, renewal and rescheduling of large loan as well as in case of opening of L/C and issuance of Bank Guarantee vide BRPD Circular No. 13 dated October 26, 2000. Further included in the same Circular is that it must have to be ensured that no loan facility shall be extended to any defaulters and for this purpose banks at their own interest shall collect credit information from the CIB. [Amount of large loan to be determined in terms of BRPD Circular No. 05 dated April 09, 2005].

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[31] BCD Circular No. 07 dated June 17, 1995.
[32] raised to Tk. 50 lacs vide BCD Circular No. 09 dated June 29, 1995 subsequently rescinded and revised vide BRPD Circular No. 13 dated October 26, 2000.
[33] BCD Circular No. 09 dated June 29, 1995 subsequently rescinded and revised vide BRPD Circular No. 13 dated October 26, 2000.

Decision has been adopted after reviewing the issue that from now on in terms of the provisions incorporated in Bank Companies Act, 1991, banks can declare their dividend without prior approval of Bangladesh Bank subject to compliance of the following conditions: -

(1) No dividend in cash or in bonus share (keeping in consideration the order issued on 11.09.01 by the Securities and Exchange Commission in respect of issuance of bonus share) can be declared with short-fall in capital of the bank.

(2) Banks shall have to comply with the following conditions in respect of maintenance of provision:

(a) Provision against adversely classified loans shall have to be maintained at the rate(s) specified by Bangladesh Bank;

(b) General provision @ 1% against unclassified loans shall have to be maintained;

(c) Provision against 'Investment' and 'Other Assets' shall have to be maintained at the rate(s) specified by Bangladesh Bank.

(3) Prior to declaration of dividend, the concerned bank shall have to obtain specifically a certificate from the external auditor to this effect that provisions have been properly maintained having followed/complied with the rules, regulations and norms issued by Bangladesh Bank and there is no short-fall in respect of maintenance of capital adequacy and provision.

(4) In case of declaring dividend in cash at higher rate i.e., beyond 20% , a sum equal to the amount of dividend in excess of 20% shall have to be kept deposited in the Dividend Equalization Account which shall be treated as `Core Capital' of the bank

(5) If any post-facto review during on-sight inspection by Bangladesh Bank reveals any deviation in compliance of the above conditions in declaring dividend of any year, prior permission from Bangladesh Bank shall have to be obtained before declaration of dividend for the next year.

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[34] BRPD Circular Letter No. 18 dated October 20, 2002
 

Decision has been adopted to this effect that from now on scheduled banks can extend loan against shares of the companies listed and quoted with the Stock Exchange up to 40% of the market value of the same. In order to administer properly the lending activities against shares, banks are advised to comply with the following prudential guidelines: -

1) Only shares listed and quoted with the Stock Exchange shall be treated as eligible security.

2) Shares can be treated as security against any type of loans. Loan can be extended up to 40% of the market value of the shares. However, maximum of Tk. 10^[36] (ten) lacs can be extended to a single borrower. For the purpose of determining the loan-limit, an average of market value for the preceding six month shall have to be taken into account.

3) In all cases, before disbursement of loan, full control of the shares and irrevocable authority for transferring the same to the third party shall have to be taken. For this purpose, apart from taking deposit of the share-scripts, the Transfer Deed, Memorandum of Deposit of shares and other requisite documents shall have to be obtained.

4) Compliance of the provisions of Sub-section 26(2) of the Bank Companies Act, 1991 shall have to be ensured. Moreover, no bank shall extend loan against shares for an amount more than 5% of its total liabilities.

5) Banks shall certainly for once a month analyse/review the coverage of the extended loans having verified/scrutinized the market value of shares pledged as security at the lending branches' level keeping proper records thereof. If the value of the shares declines, banks, in such case, shall demand for required extra shares from the borrower for due coverage thereof or shall withdraw the loan facility. Bank's internal audit shall regularly examine whether these reviews are regularly conducted at branch level.

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[35] BCD Circular No. 02 dated February 06, 1995.BCD Circular No. 04 dated May 28, 1995 made debentures of the companies listed and quoted with the Stock Exchange eligible for availing of loan thereagainst subject to compliance of the instructions of the BCD Circular No. 02 dated February 06, 1995.
[36] Ceiling raised vide DBOD Circular No. 11 dated August 29, 1995    

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[37] BRPD Circular No. 01 dated February 19, 1997.
[38] BRPD Circular No. 01 dated January 10, 2004.

2. In applying the fees there should be no discriminations among customers for similar services. In other words, all customers are required to be treated at par for similar services.

3. Each bank will prepare its schedule of charges and commissions etc. and ensure that these are publicly accessible at each branch.

4. Each bank will forward to BCD (now BRPD), Bangladesh Bank a copy of the schedule of charges and commissions. Any changes to such schedules as may be made from time to time must be forwarded to Bangladesh Bank forthwith.

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[39] BRPD Circular No. 03 dated January 11, 1990.

01. Short title. - This Act may be called the Bank Deposit Insurance Act 2000.

02. Definitions. - In this Act, unless there is anything repugnant in the subject or context -

'Deposit' means in case of any scheduled bank, the summation of unpaid residue of its depositors' accounts;

'Trustee Board' means the Trustee Board of the fund as mentioned under Section 8 hereof;

'Scheduled Bank' means the Scheduled Bank as defined under Article 2(j) of the Bangladesh Bank Order, 1972 (P.O.No.127 of 1972);

'Fund' means the Trust Fund as preserved under Section 3 hereof;

'Auditor' means chartered accountant as defined under Article 2(1)(b) of the Chartered Accountants Order, 1973 (P.O.No.2 of 1973);

'Premium' means premium payable by the insured bank as specified under Section 5 hereof;

'Bangladesh Bank' means Bangladesh Bank established under Bangladesh Bank Order, 1972(P.O.No.127 of 1972);

'Insurance' means deposit insurance;

'Insured Bank' means bank insured under this Act.

03. Deposit Insurance Trust Fund.- (1) Bangladesh Bank shall maintain a Fund in the name of Deposit Insurance Trust Fund and monies of the Fund can be invested by Bangladesh Bank in any approved sector.

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[40] Circulated vide BRPD Circular No. 10 dated September 07, 2000
 

(2) The following monies will be deposited in the Fund namely: -

(a) Money received from insured bank;

(b) Return on investment of monies of the Fund;

(c) Money received from the bank liquidated under Section 7 hereof;

(d) Income received from other sources.

(3) Monies of the Fund shall not be spent for any purposes other than for repayment of dues of the depositors of the bank liquidated under the provision of Section 7 hereof and for the cost of maintenance of the Fund;

(4) Nothing of Income Tax Ordinance 1984 (XXXVI of 1984) shall apply to the income of the Fund.

04. Insured Bank. - Notwithstanding anything contained in any other law for the time being in force,

(a) All scheduled banks existing on the date of enforcement of this Act shall be deemed to have been insured with the Fund from the same date; and

(b) All scheduled banks to be established after enforcement of this Act, shall be insured with the Fund.

05. Premium of the Insured Bank. - (1) Each insured bank shall pay the premium to the Fund @ 0.07% per annum on such portion of its deposit as may be determined by Bangladesh Bank from time to time.

But provided that, Bangladesh Bank, with the prior approval (previous sanction) of the Government, shall have the power to increase or decrease the rate or premium.

(2) Insured bank shall pay its premium from its expenditure account.

(3) Premium shall have to be paid at such time and mode as specified by Bangladesh Bank.

(4) If any insured bank fails to pay its premium, Bangladesh Bank shall have the power to direct as to the deposit of such premium to the Fund by debiting the amount equal to that of the premium from the account of the said bank maintained with Bangladesh Bank.

06. Action against failure for more than once in payment of premium :- If any insured bank fails for more than once to pay the premium, Bangladesh Bank, allowing the chance of hearing and by notification in the Official Gazette, shall have the power to direct as to refraining any insured bank from accepting deposit for the time as specified in the notification .

07. Liability of the Fund.- (1) If the order is passed for liquidation of any insured bank, Bangladesh Bank shall pay each of its depositors the amount equal to one's deposit, not exceeding maximum Tk. 01 (one) lac, from the Fund.

(2) If any depositor has more than one accounts in the liquidated bank and the balances of the accounts altogether even if stand more than Tk. 01 (one) lac, he shall not be paid back more than Tk. 01 (one) lac. The Official Liquidator against the net asset of the liquidated bank shall adjust such payment with the amount payable to the depositors.

(3) The Official Liquidator, whatever he might be termed, within less than 90 days after assuming his office, shall submit to Bangladesh Bank the list of deposits of the depositors in the form as specified by Bangladesh Bank.

(4) The Trustee Board shall arrange for payment from the Fund the amounts due to the depositors in terms of the provisions of Sub-section (1) within less than 90 days after receipt of the list as specified under Sub-section (3) hereof .

(5) If the amount of the deposited monies of the Fund falls short of the payable amount, Government shall, through Bangladesh Bank lend the Fund the amount of short-fall @ Bank-Rate-based interest.

(6) Notwithstanding anything contained in this Section, the amount payable to any depositor shall be determined net of any claims of the insured bank legally due to it.

08. Trustee Board.- There shall be a Trustee Board for operation and administration of the Fund and the Board of Directors of Bangladesh Bank shall be the Trustee Board of the Fund .

09. Annual Report. - The Trustee Board shall submit to the Government the copy of annual accounts of the Fund certified by the Auditor and signed by the Governor of Bangladesh Bank and the Report on activities within 2(two) months from the date of preparation of such accounts.

10. Repeals and Savings. - (1) The Bank Deposit Insurance Ordinance, 1984 (LIII of 1984) is hereby repealed.

(2) All monies of the Deposit Insurance Fund preserved under the repealed Ordinance shall be transferred to the Fund.

Banks were advised to put in place an effective risk management system based on the above guidelines by June 2004. Bangladesh Bank monitors the progress of implementation of these guidelines through its on-site inspection teams through routine inspection.

The said guidelines on Managing Core Risks in Banking such as Asset and liability/Balance Sheet Risks and Foreign Exchange Risks have been reviewed. A document (interpretation to measure risks using Gap Analysis) has been issued for the banks which may help banks to measure and manage their Liquidity Risk, Interest Risk and Foreign exchange risk and minimize their losses. ⁴²

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[41] BRPD Circular No. 17, dated 07 October, 2003
[42] BRPD Circular No. 04, dated 05 March, 2007

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[43] BRPD Circular No. 06, dated 05 July, 2006
 

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[44] BRPD Circular No. 07, dated 03 November, 2004
[45] BRPD Circular No. 20, dated 20 December, 2005

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[46] BRPD Circular No. 14, dated 23 October, 2005

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[47] BRPD Circular No. 18, dated  December, 2005

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