Industry

Central bank lowers provisioning against unclassified loans to boost consumer spending

Bangladesh Bank has lowered provisioning against unclassified loans of all categories under consumer financing, except housing finance, a much-needed step aimed at boosting retail spending in the wake of the Covid-induced economic slowdown.

Banks and other financial lenders will now have to maintain 2 percent general provision against unsecured loans instead of the earlier 5 percent. Unclassified loans are those that the lender considers to be at high risk of default.

A Bangladesh Bank circular, issued on Tuesday, said that with a view to meeting emergent demand of consumer loans and to encourage the participation of lenders in this segment, it has now been decided that the banks will have to maintain 2 percent general provision against unclassified loans of all categories under consumer financing, excluding housing finance.

“In case of house finance, the required rate of general provision will remain the same (i.e. 1%) as before”, according to the circular sent to chief executives of all scheduled banks by BB’s Banking Regulation & Policy Department (BRPD). “This circular letter has been issued under the power conferred by Section 45 of Bank Company Act, 1991. This circular will come into force with immediate effect.”

As per the BRPD circular issued on May 29, 2013, banks were required to maintain 5 percent general provision against unclassified loans under consumer financing (other than housing finance and loans to professionals) and under its circular issued on August 20, 2017, banks had to maintain 2 percent general provision against unclassified credit card loans.

Source: United News of Bangladesh