BB clarifies guideline

The central bank on Tuesday issued a circular clarifying its earlier-released interest-waiver guideline.
As per the latest clarification, state-owned commercial and specialised banks cannot waive interest from debiting their incomes.
The Bangladesh Bank (BB) in its April 21 circular regarding the interest-waiver guideline said banks can waive interest on some cases, including projects that remained closed for three years.
Under such situations, there is a need for an audit report to be conducted by banks' internal control and compliance units.
The banks will comply with section 28 of the Bank Companies Act (1991) while considering interest waiver of the enterprises owned by bank board directors.
On April 21, the BB issued the original circular on the interest-waiver guideline tightening the current policy with intent to bring discipline in the banking sector.
The central bank has observed that many banks are involved in giving interest exemption to their clients, bypassing the existing policy.
Usually, banks waive interest at a time when a natural disaster or other force majeure-unforeseeable circumstances that prevent someone from fulfilling a contract-happened.
They also face difficulties in recovering their loans if borrowers die and river erosion takes place.
The latest policy has stated in detail who will get the waiver facility and how the whole process will work.
As per the new policy, banks will not waive the principal amount of loans under any circumstances.
The financial institutions will also not allow any waiver to the loans created by wilful defaulters.
The funds that have already been transferred to the income segment of banks cannot be waived.
Managing directors and CEOs of banks can waive interest accrued principal amount of Tk 1.0 million, but it needs to be approved by the respective boards.
Banks must consider costs associated with the funds while exempting interest. The cost of funds may be relaxed for the projects, which have been closed for three years in a row.
If banks do not get back any defaulted loan despite completion of legal procedure, the formula of cost of funds can be sidestepped.
The regulator also advised that banks would consider financial statements of the borrowers for three consecutive years.
If the owners' equity of the statements becomes positive after paying taxes, they will not get any interest-waiver facility.
The state-owned banks, however, will follow the government directives on interest exemption.

jasimharoon@yahoo.com