Banks asked to draw up plan to shun financial shock

The Bangladesh Bank today asked banks to draw up a recovery plan so that they can take a time-befitting move to resolve any downside risk emanating from default loans, liquidity crisis and some other factors.

The guideline will help banks sidestep any catastrophic loss before such type of crisis emerges to a substantial extent, a Bangladesh Bank official said.

Every bank will have to prepare the plan and submit it to the central bank within January every year.

But, the first recovery plan will have to be submitted by 30 June this year with prior approval from the board of directors of respective banks. 

A bank will have to identify a list of credible options that a bank could adopt to restore financial strength.

The central bank mentioned a good number of downside risks, which may subsequently create a major shock for banks.

For instance, declining profitability, decrease in revenue sources, the sudden withdrawal of deposits, decrease in capital ratios and deterioration of asset quality will put an adverse impact on the financial health of lenders.

If banks address the issues in time by way of preparing the recovery plan, they can avoid any dire consequence related to their financial health, the BB official explained.

The central bank asked the management of banks to reassess or verify the recovery plan at least annually in response to any probable shock that may hit the lenders' financial health.

Banks' board is responsible for overseeing the lenders' recovery planning process.

The board will review and approve the recovery plan at least annually, and as needed to address significant changes made by management.