Tuesday 6 December 2011

LOAN CLASIFICATION, PROVISIONING


Loan classification is the act of grouping or arranging of loans and advances according to their status like unclassified, substandard, doubtful and bad-loss based on given criteria.
Provisioning means setting aside certain fund from current year profit against possible loan losses.
Effects of Loan classification:
·         Interests applied on loan are not taken into account because such interests are to be taken into account only on its realization.
·         Banks have to make provisions on classified loans as per guidelines provided by the Bangladesh Bank from income earned by them on performing loan.
Objective of loan classification:      
·         Find out net-worth of a bank.
·         Assess financial soundness of bank.
·         Determine required provision and the amount of interest suspense.

Importance of Loan Classification:
·         Strengthen credit discipline;
·         Improve loan recovery positions &
·         Make future planning of loan.

No comments:

Post a Comment

ONE Bank Ltd. Restored Salary of Employees effective from 1st January 2021

Salary/Benefits of ONE Bank Ltd. reverted back to its original amount before cutting the salary benefit in the year 2020. Due adverse affect...