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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
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
GUIDELINES ON MANAGING CORE RISKS IN BANKING
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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Items |
Risk weights |
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1. |
Cash in hand and with banks (except banks abroad) |
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a) |
Bangladesh Bank notes |
0% |
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b) |
Government notes and coins |
0% |
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c) |
Balances with Bangladesh Bank |
0% |
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d) |
Balances with Sonali Bank as agent of Bangladesh Bank |
0% |
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e) |
Balances with Deposit Money Banks including Sonali Bank |
0% |
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f) |
Balances with Other Financial Institutions (OFIs) -Public |
0% |
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g) |
Balances with Other Financial Institutions (OFIs)- Private |
20% |
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2. |
Money at call and short notice |
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a) |
Deposit Money Banks (DMB) |
0% |
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b) |
Other Financial Institutions (OFIs) -Public |
0% |
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c) |
Other Financial Institutions (OFIs)-Private |
20% |
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3. |
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Foreign currency balances held |
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a) |
Foreign currency notes in hand |
0% |
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b) |
Balances with banks abroad |
0% |
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c) |
Foreign currency clearing account balances with Bangladesh Bank |
0% |
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d) |
Bilateral trade credits |
50% |
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e) |
Wage Earners' (WES) accounts |
0% |
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4. |
Export and Other Foreign Bills |
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a) |
Export bills |
50% |
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b) |
Other foreign bills |
50% |
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5. |
Foreign Investment |
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a) |
Organization of Economic Co-operation and Development (OECD) countries |
20% |
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b) |
Other countries |
50% |
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6. |
Import and Inland Bills |
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a) |
Government |
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1) |
Ministry of Food |
0% |
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2) |
President's Office, Prime Minister's office, Parliament, Judiciary & Non -Food Ministries |
0% |
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3) |
Autonomous & Semi Autonomous Bodies |
20% |
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b) |
Other Financial Institutions |
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1) |
Other Financial Institutions-Public |
20% |
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2) |
Other Financial Institutions- Private |
20% |
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c) |
Major Non-financial Public Enterprises |
50% |
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d) |
Other Non-Financial Public Enterprises |
50% |
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e) |
Local Authorities |
20% |
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f) |
Private Sector |
100% |
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g) |
Deposit Money Banks |
20% |
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7. |
Advances |
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a) |
Government |
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1) |
Ministry of Food |
0% |
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2) |
President's Office, Prime Minister's Office, Parliament Autonomous & Semi Autonomous Bodies |
0% |
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3) |
Autonomous & Semi Autonomous Bodies |
20% |
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b) |
Other Financial Institutions |
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1) |
Other Financial Institutions- Public |
20% |
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2) |
Other Financial Institutions-Private |
50% |
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3) |
Claims on AAA rated Multilateral Development Banks (MDBs) 4 |
20% |
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c) |
Major Non-Financial Public Enterprises |
50% |
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d) |
Other Non- financial Public Enterprises |
50% |
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e) |
Local Authorities |
20% |
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f) |
Private Sector |
100% |
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g) |
Deposit Money Banks |
20% |
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8. |
Investment (as per book value) |
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a) |
President's Office, Prime Minister's Office, Parliament, Judiciary & Non-Food Ministries |
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1) |
Treasury Bills (28 days, 91 days etc.) |
0% |
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2) |
Treasury Bills (Long -term) |
0% |
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3) |
Government Savings Certificate (Bangladesh Sanchaya Patra, 3 months' profit basis Sanchaya Patra etc.) |
0% |
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4) |
Prize bonds/ Income tax bonds |
0% |
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5) |
Other Securities of Government |
0% |
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b) |
Autonomous & semi-Autonomous Bodies |
20% |
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c) |
Other Financial Institutions |
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1) |
Other Financial Institutions-Public |
20% |
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2) |
Other Financial Institutions-Private |
50% |
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d) |
Major Non- financial public Enterprises |
50% |
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e) |
Other Non-financial Public Enterprises |
50% |
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f) |
Local Authorities |
20% |
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g) |
Private Sector |
100% |
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h) |
Deposit Money Banks |
20% |
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i) |
Negotiable Certificates of Deposits |
20% |
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9 |
Head office and Inter Branches Adjustments |
0% |
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10 |
Other Assets |
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a) |
Contingent assets as per contra (Off-balance sheet items) |
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1) |
Letter of Credit and Letter of Guarantee Issued on account of Govt. |
0% |
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2) |
Deposit Money Banks |
20% |
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3) |
Other |
50% |
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4) |
Claims guaranteed by, or collateralized by securities Issued by AAA rated Multilateral Development Banks (MDBs) |
20% |
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b) |
Fixed Assets |
50% |
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c) |
Valuation adjustments |
50% |
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d) |
Expenditure Account |
0% |
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e) |
Other |
100% |
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Note-1: |
Claims fully secured by cash/quasi-cash, which is lodged with the bank itself, will have zero weight. All claims should be calculated net of such securities. |
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Note-2: |
Claims on borrowers other than Government or bank, which are guaranteed, by the Government or a bank will carry the weight appropriate for the guarantor. |
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Note-3: |
Netting may also be done in respect of assets where provisions for depreciation or for bad and doubtful debts have been made. |
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Note-4: |
Netting may be done in respect of interest suspense. [4]. |
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[4] BRPD Circular No.
1 dated February 19, 2007
[5] BRPD Circular No.
3 dated May 09, 2004
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INSTRUMENTS |
Credit conversion Factor |
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1. |
Direct credit substitutes, including financial guarantees, standby letters of credit serving as guarantees and bills endorsed under bill endorsement lines (but which are not accepted by, or have the prior endorsement of another bank). |
100% |
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2. |
Sale and repurchase agreements, forward assets purchases and placement of forward deposits. |
100% |
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3. |
Transaction related contingent items including performance bonds, bid bonds, warranties and stand by letter of credit related to a particular transaction, |
50% |
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4. |
All note issuance facilities and revolving under-writing facilities; other commitments (e.g. formal-standby facilities) with a residual maturity exceeding one year. |
50% |
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5. |
Short-term self-liquidating trade related contingencies (such as documentary letters of credit and other trade financing transactions). |
20% |
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6. |
Commitments with a residual maturity not exceeding one year, or which can be cancelled or revoked at any time (e.g. un-drawn overdraft and credit card facilities). |
0% |
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Note: For items not included above, credit conversion factors to be used, Should be discussed with Bangladesh Bank. |
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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.
CHIEF EXECUTIVE AND ADVISOR IN BANKS [14]
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.
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Dated: |
Signature: ( ) |
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Countersigned: ( ) Chairman, Board of Directors ……...….……….…. Bank Ltd. |
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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.
Balance Sheet Form
Balance Sheet As at …………….. 20 ……
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Note |
Current year (TK) |
Previous year (TK) |
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PROPERTY AND ASSETS Cash in hand (Including foreign currency) Balance with Bangladesh Bank and its agent bank(s) (Including foreign currency) Balance with other banks and financial institutions In Bangladesh Outside Bangladesh Investments: Government Others Loans and Advances: Loans, Cash Credit, Overdrafts etc. Bills purchased & discounted Fixed assets including premises, furniture and fixtures
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01
02
03 04
05
06 07 08 09 |
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Total Assets: |
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Liabilities: Borrowings from other banks, financial institutions and agents Deposits and other accounts: Current Accounts and other Accounts Bills Payable Savings Bank Deposits Fixed Deposits Bearer Certificates of Deposit Other Deposits |
10 11
12 |
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Capital/Shareholders' Equity Paid up Capital Statutory Reserve Other Reserve Surplus in Profit and Loss A/C |
13 14 15 16 |
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Total Shareholders' Equity** |
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