From now on banks will have to submit a recovery plan report to Bangladesh Bank (BB) at the beginning of each year to tackle any sudden negative impact on business such as increasing defaulted loans or other potential shocks.
With the approval of the board of directors of the bank, all such information has to be sent to the Division-1, Department of Offsite Supervision (DOS) of BB by January 31 every year.
However, for the current year, the deadline for submission of that plan has been fixed till June 30, Bangladesh Bank said in a circular issued on February 24.
Regarding the circular, a BB official told Dhaka Tribune: “A circular is issued to provide guidance for the banks to develop a recovery plan for preparing their responses to the potential shocks in advance so that they can act promptly and effectively in the event of a stress situation.”
The central bank reserves the right to adjust these requirements to the circumstances of each bank, and will review the recovery plan of banks as part of the regular ongoing supervisory process, the circular added.
BB also said the banks’ management will reassess the recovery plans at least once annually, and in response to any material event that includes a wide range of transactions or restructures that could increase business value.
They will take necessary steps to reassess the plans, to reflect significant changes in banks' size, risk profile, activities, and complexity, as well as changes in external threats, it added.
At the same time, detailed information about a bank’s risk-bearing capacity should be given, such as what will be the plan if 25% deposit is withdrawn; or if defaulted loans increase by 5%.
The bank will have to come up with a plan every year on how to resolve the issue if the interest rate goes up or down by 3%.
The plan will contain the necessary steps for any case of a deficit and to maintain the confidence of the people.
The boards will also be responsible for overseeing banks' recovery planning process, reviewing and approving the recovery plans at least once annually, and will address significant changes made by the management, said the circular.
Banks have to submit their recovery plans in line with a format by the central bank.
In addition to this, the chairman, MD or director of the bank's board of directors and their tenure has to be included and updated every year from now on.
If there is more than one member of a family on the board of directors, information including the relationship and the number of shares held has to be provided.
Apart from this, the name and address of each director and all the information of the other committee members of the board of directors should be enclosed with that report.
Interestingly, according to the latest amendment of the Banking Companies Act 2018, a person has the opportunity to hold the post of director for nine consecutive years and those who have been directors since before this amendment are also getting the benefit of a new term of nine years.