The central bank’s new provisioning policy guidelines may discourage banks and financial institutions from investing in the country’s most prospective and vibrant Small and Medium Enterprise (SME) sector.

If it happens, business and banking circles apprehend, it will severely affect the country’s rapidly growing SME sector on which more than 40-50 million people are directly or indirectly dependent.

The business and banking circles also said that it will, by and large, affect the country’s economic growth as the SMEs’ contribution to GDP may fall because of the new provisioning policy of the Bangladesh Bank.

Official sources said that the new circular, issued by the Banking Regulation & Policy Department (BRPD) of Bangladesh Bank on June 14 this year and then revised on September 23 brought some major changes to the existing bank loan classification and provisioning guidelines.

The changed guidelines halved the ‘overdue’ periods for loan classification from the existing ones, which will nearly ‘double’ the provisioning requirement.

Under the new regime, a term loan would be classified ‘bad’ and it will require 100 per cent loan loss provision when installments are overdue for 270 days, whereas under the existing policy it was 540 days.

Although requirement for general provision (GP) has been reduced from 1 per cent to 0.25 per cent, but the increase in specific provision will be much higher than the reduction in GP.

The bankers have been asked to implement the new policy within the current fiscal year.

Until issuance of the new circular, the micro and agriculture sector had been enjoying a special concession in receiving bank credit and in terms of loan classification and provisioning.

From a general point of view, many business and banking professionals have welcomed the new policy for large and medium corporates since it will align the country’s credit policies to international standards and streamline the banks’ credits.

News: The Daily Sun/Bangladesh/19th-Dec-12