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Exchange
Rate Policy
Towards
liberalization of foreign
exchange transactions, a
number of measures were
adopted since 1990s.
Bangladeshi currency, the taka,
was declared convertible on
current account transactions
(as on 24 March 1994), in
terms of Article VIII of IMF
Article of Agreement (1994).
As Taka is not convertible in
capital account, resident
owned capital is not freely
transferable abroad.
Bangladesh
adopted Floating Exchange Rate
regime since 31 May 2003.
Under the regime, BB does not
interfere in the determination
of exchange rate, but operates
the monetary policy prudently
for minimizing extreme swings
in exchange rate to avoid
adverse repercussion on the
domestic economy. In the forex
market banks are free to buy
and sale foreign currency in
the spot and also in the
forward markets.
Interest
Rate Policy
Under
the Financial sector reform
program, banks are free to
charge/fix their deposit (Bank /Financial Institutes) and Lending (Bank /Financial Institutes) rates other than Export Credit. At
present, Loans at reduced
rates (7%) are provided for
all sorts of export credit
since January 2004. With a
view to controlling the price
hike and ensuring adequate
supply of essential
commodities, the rate of
interest on loan for import
financing of rice, wheat,
sugar, edible oil (crude and
refined), chickpeas, beans,
lentils, onions, spices ,
dates and powder milk has been
temporarily fixed to a maximum
of 12%.
Now,
banks can differentiate
interest rate up to 3%
considering comparative risk
elements involved among
borrowers in same lending
category. With progressive
deregulation of interest
rates, banks have been advised
to announce the mid-rate of
the limit (if any) for
different sectors and the
banks may change interest 1.5%
more or less than the
announced mid-rate on the
basis of the comparative
credit risk.
Recently
Banks have been advised to
upload their deposit and
lending interest rate in their
respective website.
Capital
Adequacy of the Banks
With
a view to strengthening the
capital base of banks and
making them prepare for the
implementation of Basel-II
Accord, banks are required to
maintain Capital to
Risk-Weighted Assets ratio 10%
at the minimum with core
capital not less than 5%
effective from December 31,
2007. However, minimum capital
requirement (paid up capital
and statutory reserve) for all
banks will be Tk.200 crore as
per Bank Company (Amendment)
Ordinance, 2007. Banks having
capital shortfall will have to
meet at least 50% of the
shortfall by June, 2008 and
the rest by June, 2009.
Revaluation
reserves of held to maturity (HTM)
securities (up to 50% of the
revaluation reserves) has been
added to the components of
supplementary capital.
Besides, 'Hedging the price
risk of commodity
transactions' has been
included in Short-term self
liquidating trade related
contingencies.
Loan
Classification and
Provisioning
In
order to strengthen credit
discipline and bring
classification and
provisioning regulation in
line with international
standard, Bangladesh Bank
issued a master circular on
loan classification and
provisioning through BRPD
circular no 5 dated June 5,
2006. The revised policy
covers an independent
assessment of each loan on the
basis of objective criteria
and qualitative factors which
is appended below :
Any Continuous
Loan/Demand 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. A Continuous
Loan/Demand loan/Term Loan which
will remain overdue for a
period of 90 days or more,
will be put into the
"Special Mention
Account(SMA)". Interest
accrued on "Special
Mention Account (SMA)" will
be credited to Interest
Suspense Account, instead of
crediting the same to Income
Account.
A Continuous
Loan/Demand loan is
classified as 'Sub-standard' if
it is past due/over due for 6
months or beyond but less than
9 months, classified as`Doubtful' if
it is past due/over due for 9
months or beyond but less than
12 months and classified as `Bad/Loss'
if
it is past due/over due for 12
months or beyond.
If
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'. 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 (six) months, the
entire loan will be classified
as "Sub-standard", if
the amount is equal to or more
than the amount of
installment(s) due within 12
(twelve) months, the entire
loan will be classified as"Doubtful" and
if the amount is equal to or
more than the amount of
installment(s) due within 18
(eighteen) months, the entire
loan will be classified as "Bad/Loss".
In
case of Fixed Term
Loans, which are
repayable in more than
five years of time
and if the amount of
'defaulted installment' is
equal to or more than the
amount of installment(s) due
within 12 (twelve) months, the
entire loan will be classified
as"Sub-standard".
If the amount is due within 18
(eighteen) months, the entire
loan will be classified as "Doubtful" and
if the amount is due within 24
(twenty four) months, the
entire loan will be classified
as "Bad/Loss".
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