Financial Stability Department Website: www.bb.org.

bd
Bangladesh Bank
Head Office
Dhaka
`
10 Poush, 1422
FSD Circular No. 01 Date:
24 December 2015

Chief Executives
All Scheduled Banks and Financial Institutions in Bangladesh

Dear Sir,

Setting up of Central Database for Large Credit (CDLC)

Bangladesh Bank has adopted a series of reform measures to strengthen its supervisory and prudential
framework for enhancing financial discipline and establishing a robust financial system in line with the
international best practices. As a result, a considerable progress has been made in credit discipline and
recovery initiatives. A portion of loans may, however, turn into bad/loss that making stress on financial
soundness, e.g., earnings, and capital adequacy of an individual bank or Financial Institution (FI),
thereby leading to financial system instability. Indeed, a large exposure could appear as burdensome
for an individual bank or FI and create instability in the whole financial system. Though the low
quality credit portfolio is not that significant yet, it may create stress on the individual bank or FI in
particular and the financial system in general if left unaddressed.
Bangladesh Bank, in this context, has decided to introduce a new oversight framework for large
exposures to identify and manage the low quality assets well ahead of time before they appear as a
cause to financial distress. The framework will involve all concerned banks and FIs to initiate joint or
individual, as the case may be, prompt corrective efforts for managing those assets. At this onset,
Bangladesh Bank has decided to establish a Central Database for Large Credit (CDLC) to monitor the
large exposures in a more structured way. The procedures of setting up of the CDLC and reporting
process are as follows:

1. Setting up of CDLC for Early Recognition of Low Quality Assets

1.1 A CDLC shall be created to collect, store and share credit data among the concerned banks and
FIs. The data shall include banks’ and FIs’ all types of exposures to person(s), counter party(s) or
group(s) including investments in bonds/debentures/commercial papers issued by those
borrowers/obligors.
1.2 Banks and FIs are instructed to report all of their exposures (funded and non-funded) to
person(s), counter party(s) or group(s) and investments in bonds, debentures or commercial
papers having an aggregate exposure of BDT 50 (Fifty) Crore and above. Banks and FIs are
advised to follow the definition of person(s), counter party(s) or group(s) as specified in the
BRPD Circular No. 02 of 16 January 2014 and other concerned circulars of Bangladesh Bank.
1.3 Banks and FIs are also instructed to identify the budding stress in their exposures by splitting the
Standard category into following four sub-categories for the purpose of reporting under this
circular before turning those to Special Mention Accounts (SMA) in accordance with BRPD
Circular No. 14 of 23 September 2014, FID Circular No. 08 of 03 August 2002 and all
subsequent amendments:

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 Sub-category Basis of Category
Standard-0 Regular/Renewed/Rescheduled/Restructured
Standard-1 Overdue between 01-29 days
Standard-2 Signals of budding:
Overdue between 30-59 days
Standard-LQ* As described in paragraph 1.4
*LQ=Low Quality

1.4 Categorizing Standard-LQ through Qualitative Measures:

i. Delay of 30 days or more in (a) submission of stock report and other stipulated operating
control statements or (b) credit monitoring or financial statements or (c) non-renewal of
facilities based on audited financial statements.
ii. Actual sales or operating profits falling short of projections accepted for loan sanctioned by
40% or more; or a single event of non-cooperation/prevention from conduct of stock audits by
banks/FIs; or reduction of Drawing Power (DP) by 20% or more after a stock audit; or
evidence of diversion of funds for unapproved purpose(s); or drop in internal risk rating by 2 or
more notches in a single review.
iii. Return of 3 or more cheques/debit instructions/electronic debit instructions issued by
borrowers in 30 days on ground of non-availability of balance/DP in the account or return of 3
or more bills/cheques discounted or sent under collection by the borrower.
iv. Devolvement of Deferred Payment Guarantee (DPG)/ its installments or Letter of Credit (LC)
or invocation of Bank Guarantee (BG) and its non-payment within 15 days.
v. Third request for extension of time for creation of charges/mortgage of securities beyond the
time specified in original sanction terms or non-compliance with any other terms and
conditions of sanction.
vi. Frequent overdrawing in loan accounts.
1.5 Banks and FIs should identify these early warning signs of weaknesses in the borrower’s
accounts with a view to rectifying those deficiencies at the earliest. They must put in place a
proper management information and reporting system so that any account having principal or
interest overdue for 30 days or more gets reported as Standard-2 on the 30th day itself.
1.6 As soon as an account of a borrower is reported to CDLC as Standard-2 or Standard-
LQ, concerned banks and FIs should form a Lenders’ Committee with a signed agreement called
Joint Lenders Forum (JLF) with a Convener and formulate a Corrective Action Plan (CAP) for
that account.
1.7 The existing consortium arrangement may serve as the JLF where the lead bank or FI shall act as
the Convener. For accounts with multiple banks or FIs, the bank or FI with the highest exposure
(funded and non-funded) shall convene the JLF meeting at the earliest and facilitates exchange
of information on that account.

2. Credit Risk Management

2.1 Banks and FIs shall carry out their independent credit appraisal in all cases and must not depend
on the credit appraisal report(s) prepared by outside consultants, especially the in-house
consultants of the borrower.
2.2 Banks and FIs may carry out sensitivity tests/scenario analyses, especially for large projects,
which could, inter alia, include project delays and cost overruns. This will aid in taking a view
on viability of the project at the time of deciding the CAP.

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2.3 Banks and FIs should ascertain the source of equity capital brought in by the
promoters/shareholders to avoid multiple leveraging as it may effectively camouflage the
financial ratios, leading to adverse selection of the borrowers.
2.4 Banks and FIs shall verify whether the name of individual, proprietor, partner, director,
guarantor or trustee of the organization or company appear in the list of defaulters with reference
to the National Identification Number (NID), Electronic Taxpayer’s Identification Number (e-
TIN), etc. while carrying out the credit appraisal. Furthermore, in case of any doubt arising on
account of identical names, concerned bank or FI shall verify the identity of the individual,
proprietor, partner, director, guarantor or trustee of the organization or company.
2.5 With a view to ensuring proper end-use of funds and preventing diversion of funds by the
borrowers, banks and FIs shall engage auditors for specific certification purpose without relying
on the certification given by borrowers’ auditors. However, this does not, in any way, substitute
bank’s or FI’s basic due diligence in this regard.

3. Board Oversight
3.1 The Board of Directors of banks and FIs should proactively use the CDLC for early recognition
of deterioration in asset quality and taking necessary steps to halt it and focus on improving the
credit risk management system.
3.2 The Board should put in place a policy for timely submission of credit data to the CDLC, prompt
formation of the JLF, monitoring the progress of the JLF and review the status of exposure
reported to the CDLC on quarterly basis.

4. Reporting
Financial Stability Department (FSD) of Bangladesh Bank shall make the required reporting formats
available to the banks and FIs in due course. Banks and FIs are advised to submit their returns as per
specified MS Excel format (soft copy only) to FSD until further order. The reports shall have to be
submitted in the following way:
4.1 The first reporting month will be December 2015 and the first report to be submitted by 29
February 2016.
4.2 The second report (i.e., report of January 2016) to be submitted by 15 March 2016.
4.3 Subsequent reports to be submitted, based on the balance of the last day of the reporting month,
within the last working day of the following month (i.e., report of February 2016 to be submitted
by 31 March 2016).
4.4 All banks and FIs should take utmost care about the data accuracy and integrity while submitting
the data on large credit to Bangladesh Bank.
Above instructions are issued in accordance with Section 45 of the Banking Companies Act, 1991,
Section 12 of the Financial Institutions Act, 1993 and Article 43(a) of the Bangladesh Bank Order,
1972.

Yours sincerely,

(Debashish Chakrabortty)
General Manager
Phone: +88-02-9530279