Workshop on Management of Non-Performing Loans: Cased Based Analysis

Questions

Provision:
1. What is the utilization of funnel kept as provision? what is the impact of provisioning to the
bank?

Ans: The fund kept as provision is assigned /utilized for expected losses and unexpected of
loans and advances. The higher provisioning affects the Bank’s future growth and profit.

2. What is the base for provision?

Ans: Base for Provision will be on the outstanding balance of the classified loans less the amount
of Interest Suspense and the value of eligible collateral:
a. Deposit with the same bank under lien against the loan,
b. Government bond/savings certificate under lien,
c. Guarantee given by Government or Bangladesh Bank.
For all other eligible collaterals, the provision will be on the balance calculated as the greater of
the following two amounts:
i. outstanding balance of the classified loan less the amount of Interest Suspense and the value of
eligible collateral; and
ii.15% of the outstanding balance of the loan.

3. Is provision booked under individual ac? If yes, can bank keep provision equal to outstanding
as provision is kept deducting eligible security from outstanding?

Ans: Yes, Specific provision is booked under individual accounts and provision is kept deducting
eligible security from outstanding.

4. What is the rate for SS?

Ans: The rate for SS is 20% on base of provision

5. What is the relationship between provisioning and credit rating?

6. What is the provision rate for regular HBL (retail) loan?

Ans: The provision rate for regular HBL(retail) loan is 2% on outstanding balance.

7. Is this mandatory to keep 100% provision for written off loan?

Ans: Yes, this is mandatory to keep 100% provision for written off loan.

8. How much provision is allowed in the case of SMA loan?

Ans: the following rate of provision is allowed in the case of SMA Loan:

Particulars Rate
SMEF 0.25%
Loans to BHs/ MBs/SDs 2%
Consumer Financing:
House Financing: 2%
Loan for professionals 2%
Other than HF, LP 5%

All other Credit 1%