Bangladesh Bank has relaxed its Internal Credit Risk Rating System (ICRRS) guidelines for banks, allowing them to approve, renew, or adjust loans for borrowers with an ‘unacceptable’ credit rating.
The directive, issued on Tuesday, by the Department of Banking Regulation and Policy of Bangladesh Bank is intended to ensure a continuous flow of necessary credit and investment facilities from the banking sector, said a circular by the BB.
‘Unacceptable’ credit rating implies that borrowers failed to repay loan or missed their installments or failed fulfill the conditions given by the banks.
The directive to relax the ICRRS comes amidst rising interest rate and geopolitical tension that slowed down economic activities. Trade bodies have been requesting banks to consider what they said reality that made them to default on their loan payment.
This new flexibility, however, comes with a set of strict conditions for banks. Banks must enhance due diligence under their own internal risk management policies, properly consider the borrower’s financial capacity and cash flow, the circular of the BB said.
Banks will also be required to accurately identify and assess collateral and mitigate credit risk. The bank’s monitoring of these loans must also be strengthened.
Before disbursing any approved loan, banks must ensure that the borrower has complied with all conditions imposed by the bank’s board of directors. The evaluation reports for these loans must specifically mention the quantitative and qualitative indicators that were used in the credit risk assessment.
A separate quarterly list of these loans must be sent to the second division of the BRPD. This list must also be maintained by the bank for inspection and auditing purposes.