For such entities, banks will utilise their own credit risk management tools and risk mitigation strategies instead of the Guidelines on Internal Credit Risk Rating System
The Bangladesh Bank, in a bid to make credit risk management more effective, removed the merchant banks, brokerage houses, and NGOs from the purview of Guidelines on Internal Credit Risk Rating System.
For such entities, banks will utilise their own credit risk management tools and risk mitigation strategies, read a circular issued by the central bank's Banking Regulation and Policy Department on Wednesday.
All other banks will continue to follow the Guidelines on Internal Credit Risk Rating System, it added.
Commenting on the matter, Dhaka Stock Exchange's former executive director Mushtaq Ahmed said, "The Bangladesh Bank's circular is not very clear to me. Merchant banks are just subsidiaries of banks, and there are no issues regarding credit risk management in such banks.
"However, the credit management in stock broker houses is complex and challenging. Only time will tell how the banks will employ credit risk management tools and risk mitigation strategy for such entities."
Internal Credit Risk Rating System is essential for banks to maintain credit discipline and monitoring.
However, the Bangladesh Bank had removed those taking out consumer loans, any small company borrowing below Tk50 lakh and any manufacturing firm below Tk1 crore from the purview of the system.
Short term agricultural loans, micro credit, and lending to banks, financial institutions, insurance companies and micro-finance institutions have also been removed.