The Bangladesh Bank (BB) has introduced new rules for classifying loans as non-performing, setting a uniform standard of payment failure for three months or 90 days across all loan types.

The updated policy, announced yesterday, will take effect in April next year, replacing the current system that applies varying overdue tenures for different loan types.

This move aligns with international best practices prescribed by the International Monetary Fund (IMF). It is part of broader banking sector reforms tied to the $4.7 billion loan package approved by the IMF in January 2023.

Under the revised framework, loans will be categorized based on their overdue duration:

• Substandard: Overdue for three to six months.
• Doubtful: Overdue for six to 12 months.
• Bad and Loss: Overdue for 12 months or more.

Loans in the bad and loss category will continue to follow the current 12-month or more rule for overdue payments.

The new rules also eliminate the extended classification tenures previously granted to cottage, micro, small, and medium enterprises (CMSMEs). CMSME loans are categorized as substandard for overdue periods of six to 18 months, doubtful for 18 to 30 months, and bad and loss for 30 months or more.

Starting in April, these loans will follow the same classification standards as other loans, potentially increasing their vulnerability of being labeled as non-performing.

The revised classification rules come as the banking sector grapples with record-high non-performing loans, which stood at Tk 284,977 crore as of September 2023. The new standards could lead to a surge in reported NPLs by tightening the timelines for loan classification.

The new classification rules do not alter the provisioning requirements for banks. Banks are currently required to maintain provisions as follows:

• 1–5% for general category loans.
• 20% for substandard loans.
• 50% for doubtful loans.
• 100% for bad loans.