Bangladesh Bank recently issued a warning to banks not to show any unrealized interest gained from rescheduled loans as their income.
The central bank made the call after some banks transferred their unrealized interest to their income segment of their respective balance sheets, breaching regulatory norms.
“This artificially soared the banks' income, which is not the actual image of the lenders,” the Bangladesh Bank said in a circular issued on Thursday.
Unrealized profit or losses refer to profits or losses that have occurred on paper, but the relevant transactions are yet to complete.
As per the central bank rules, banks are only permitted to transfer interest gained from rescheduled loans to their income segment when borrowers give installment of loans.
The malpractice carried out by banks are weakening the capital base and hampering the credit discipline in the banking sector as well.
Against the backdrop, the banking regulator strictly prohibited banks not to inflate their income artificially.
